FS: Copper, gold prices steady even as equities sell off
The base and precious metals markets were quiet on Friday – general anxiety ahead of the next Federal Reserve meeting and the Brexit vote pushed many investors to the sidelines.
Copper for July delivery on the Comex division of the New York Mercantile Exchange was last down 0.7 cents at $2.0320 per pound. Trade has ranged from $2.0175 to $2.0455 but volumes are likely to be thin due to the Dragon Boat festival in Asia.
“Copper, often known as a reliable indicator of economic health, is unwell. The recent price weakness suggests risk-off sentiment among investors ahead of the June FOMC meeting and the risk of a Brexit on June 23,” FastMarkets analyst Andy Farida said.
“[But] in the short term, we feel that the selling pressure may have run its course and a potential technical rebound is on the cards,” he added.
The big story in copper this week was that London Metal Exchange inventories have increased by 65,500 tonnes over the past week to 213,225 tonnes, which was the main reason that the LME forward curve has shifted into a contango from a deep backwardation.
“While the argument could be made that this particular incident is an example of stock transfer due to a massive backwardation on the front of the curve, rather than a function of the underlying copper market fundamentals, the sheer size of the delivery points to an overly supplied market,” one analyst noted.
Three-month copper on the LME last traded at $4,533.50 per tonne, down $5 for the session and just above a four-week low.
In the precious metal markets, Comex gold for August delivery was down $2.20 at $1,270.50 per ounce, while the most active silver contract was at $17.280, up 1.2 cents.
“Brexit represents a real watershed moment for gold. With market attention diverting away from the Fed, the impact of the referendum on the gold market is likely to be much greater,” ANZ Research said in a note.
“If the Leave campaign is successful, the expected collapse in the British Pound and resultant market volatility would likely see investors seek safe haven assets. This could provide a massive boost to investor demand and would likely push gold towards $1,400,” the broker added.
In wider markets today, the dollar was 0.1 percent stronger at 1.1105 against the euro while Germany’s DAX and France’s CAC-40 were down 1.85 percent and 2.22 percent respectively.
Of particular note, the 10-year German bund yielded dropped as low as 0.023 percent, surpassing its all-time low of 0.025 percent hit on Thursday, while investors shed risk and look for safe havens.
In monetary policy news, Federal Reserve chair Janet Yellen has warned market participants to not overreact to one forecast-missing May employment report and stressed how wages and inflation are starting to recover after years of minimal improvements.
But investors are cautious after weeks of hawkish rhetoric and will await further US data and the Fed’s two-day meeting on June 14-15 before pricing in a summer rate rise, according to prediction markets.
“From the US was the hope for stronger data and improvement in the global economy, but this hope is losing momentum,” HSBC analyst Theologis Chapsalis told the Wall Street Journal. “If data from the US starts to be on the weak side, then how about the rest of the world?”
The data calendar is fairly light – only University of Michigan consumer sentiment, inflation expectations and the Federal budget balance are due of note.
