Gold prices turned back by resistance again

Precious metals were largely lower yesterday, with gold, silver and platinum off an average of 1.1 percent, while palladium bucked the trend with a one percent rise to $697. Gold prices closed at $1,327.10. Base metals were quite mixed yesterday with copper off one percent at $4,797 and aluminium closed down 0.8 percent at $1,647, while the rest were up between 2.2 percent for nickel at $10,695 and tin that was up 0.1 percent at $19,750. Lead and zinc were up around 0.7 percent.

This morning the base metals remain mixed with aluminium and zinc are up 0.4 percent, nickel is off 0.5 percent at $10,645, lead is up 0.2 percent, while copper and tin are unchanged. Volume remains light at 4,698 lots, with zinc trading 1,638 lots, nickel 1,224 lots and copper 877 lots.

Palladium is up 0.5 percent at $700.2, gold and platinum are off 0.1 percent with gold prices at $1,325.60, while silver is of 0.4 percent at $19.09.

In Shanghai, the metals are mixed with copper and aluminium off 0.4 and 0.2 percent respectively, with copper at Rmb 37,480, zinc is up 0.9 percent and nickel is up 0.6 percent, tin is up 0.2 percent and led is unchanged. Spot copper in Changjiang is down 0.4 percent, the spread is at an equivalent to around $32 per tonne, while the LME/Shanghai arb ratio is at 7.81, meaning the arb window is closed.

In other metals in China, iron ore is up 0.9 percent, steel rebar is off 0.2 percent, silver is down 1.8 percent and gold prices are off one percent.

Equities yesterday saw Europe remain under pressure, the Euro Stoxx 50 dropped 0.2 percent, but the Dow closed up 0.7 percent helped by a pick-up on consumer confidence. Asia, however, is negative this morning with the Nikkei off 1.4 percent, the Hang Seng is off 0.6 percent, the CSI 300 is down 0.1 percent, the Kospi is off 0.5 percent and the ASX 200 is little changed.

In FX, the dollar is edging higher, last at 95.57, the euro is weaker at 1.1206, sterling is last at 1.3010, the yen is firm at 100.57 and the aussie is firmer at 0.7675. The yuan is flat at 6.6687 with most emerging market currencies fairly flat, the exception being the rand that is firmer at 13.4436.

German GfK consumer climate eased to 10 from 10.2, later we get US data on durable goods orders and crude oil inventories. There are, however, numerous central bank speakers today, including UK’s MPC Nemat Shafik, Fed Chair Janet Yellen, FOMC Member James Bullard and ECB President Draghi. There is also an informal OPEC meeting in Algeria, where the mood has turned less bullish about a freeze in output.

Copper prices have had a good rebound since September 12, but light selling has dominated since yesterday’s opening, but this looks like consolidation, while the rest are holding up and look well placed to trend higher – a firmer dollar may act as a headwind.

Gold prices are pulling back from resistance once again, indeed this is the fourth time they have done so since peaking in July. As such, prices are consolidating within a wedge shape. The danger is if stale long liquidation unfolds. Silver has followed gold’s lead, as has platinum, while palladium is holding up well and is doing so above its resistance line – whether it can do it alone remains to be seen.

 

Overnight Performance
BST	06:59	+/-	+/- %	Lots
Cu	4796	-1	0.0%	877
Al	1653.5	6.5	0.4%	617
Ni	10645	-50	-0.5%	1224
Zn	2315	9	0.4%	1638
Pb	1962.5	4.5	0.2%	342
Sn	19750	0	0.0%
	Average		0.1%	4,698
Gold	1325.61	-1.49	-0.1%
Silver	19.087	-0.083	-0.4%
Platinum	1023.8	-1.2	-0.1%
Palladium	700.2	3.2	0.5%
	Average PM		-0.1%

 

SHFE Prices 06:59 BST	RMB	Change	% Change
Cu	37480	-160	-0.4%
AL	12450	-30	-0.2%
Zn	18005	165	0.9%
Pb	14685	5	0.0%
Ni	81890	500	0.6%
Sn	126840	230	0.2%
Average change (base metals)	0		0.2%
Rebar	2278	-4	-0.2%
Au	285.65	-2.85	-1.0%
Ag	4262	-77	-1.8%

 

Economic Agenda
BST	Country	Data	Actual	Expected	Previous
7:00am	Germany	GfK German Consumer Climate	10	10.2	10.2
9:05am	UK	MPC Member Shafik Speaks
1:30pm	US	Core Durable Goods Orders m/m		-0.5%	1.3%
1:30pm	US	Durable Goods Orders m/m		-1.0%	4.4%
3:00pm	US	Fed Chair Yellen Testifies
3:10pm	US	FOMC Member Bullard Speaks
3:30pm	EU	ECB President Draghi Speaks
3:30pm	US	Crude Oil Inventories		2.4M	-6.2M

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Gold edges lower on US dollar strength, softer oil prices

The spot gold price edged lower during Asian trading hours on Wednesday amid a stronger US dollar and weaker crude oil prices.

Spot gold was last at $1,325.30-1,325.60 per ounce, down $1.70 from Tuesday’s close. Trading ranged at $1,324.95-1,327.65 so far.

The US dollar index rose to as high as 95.67 on Tuesday, boosted by stronger than expected US economic data. The index was last at 95.58 so far on Wednesday, up 0.12 percent.

The US flash services PMI in September was at 51.9, beating expectations of 51.1 and August’s reading of 50.9. The CB consumer confidence for September also surprised at 104.1 – consensus was looking for 98.6 while August’s figure was at 101.1.

The S&P/CS Composite-20 house price index rose five percent in July, which was within expectations, but the Richmond manufacturing index in September disappointed at -8 as -2 was called for.

In other commodities, the Texas light sweet crude oil spot price fell to a one-week low of $44.19 per barrel, with the Brent crude oil spot price also dropping to a week’s low of $45.62 on Tuesday.

This followed Iran’s oil minister’s comments that a production cut agreement is unlikely to be reached in a meeting between OPEC and non-OPEC producers in Algiers, Algeria later on Wednesday.

The WTI crude oil spot price was last at $44.62, down 0.69 percent, and the Brent crude oil spot price was recently at $46.09, down 0.26 percent from the previous day’s close.

The spot gold price had inched lower during the US presidential debate between Donald Trump and Hillary Clinton on Tuesday.

The slight Clinton win saw speculative bids removed from the market – there had been some initial buying during the early Asian session under the assumption that a Trump victory in the first US presidential debate may materialise, MKS Group said on Wednesday morning.

Safe haven assets like gold and the Japanese yen were sold lower on Tuesday after Trump’s probability of becoming president was seemingly diminished after his poor showing in the debate, Angus Nicholson, a market analyst at Melbourne-based IG, said in a report on Wednesday morning.

“[Clinton’s] strong debate performance may well be enough to halt Trump’s recent momentum in the polls,” he said.

A number of safe haven assets had been bid up during the Trump poll surge as investors worried about what Trump would mean for the global economy, and particularly the global security risks he poses, Nicholson added.

In data, core durable goods orders, durable goods orders and crude oil inventories from the US are due later on Wednesday. Federal Reserve chairwoman Janet Yellen will also testify at the committee on financial services later today at Washington DC.

“Her views after the split FOMC [meeting in September] will be closely noted to see how close the Fed is to raising rates in December,” National Australia Bank said on Wednesday morning.

The Fed Fund futures market has assigned only an eight percent probability of a November rate hike, and 47.6 percent changes of a December rate rise, according to the CME Group FedWatch tool. The majority sees the Fed only taking action in February next year.

In equities, the Shanghai Composite fell 0.2 percent to 2,992.27 so far on Wednesday.

In other precious metals, silver was last at $19.055/19.085, down $0.095. Platinum rose $4.50 to $1,022/1,029, and palladium increased $4 to $697/705 recently on Wednesday.

On the Shanghai Futures Exchange, gold for December delivery was last unchanged at 285.60 yuan per gram, and the December silver was flat at 4,254 yuan per kilogram.

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PALLADIUM TODAY – Profit-taking after last week’s strong rally

Short Term: Medium Term: Long Term: Resistances: R1 700 Key level R2 710 200 WMA R3 748 2016 high (August) R4 750 Key resistance R5 884 DTL from 2000 high Support: 100 633 20 679 50 690 200 588 Support: S1 679 20 DMA S2 633 100 DMA S3 576 UTL (purple) S4 528 June low S5 449 2016 low Stochastics: Legend: DMA = Daily moving average. DMAs often correspond to support or resistance levels. Their slope is also important because it shows if the market can be supported on the upside (rising) or pressured on the downside (falling). WMA = Weekly moving average. MMA = Monthly moving average. UTL = Uptrend line. The momentum index allows us to determine whether momentum is positive or negative. We use a parameter equal to 10, corresponding to momentum over the past 10 days. Above 0, momentum is positive; below 0, momentum is negative. ADX – average directional index. This allows us to gauge the strength of the current trend (above 20, the trend is strong; below 20, the trend is weak). The combination of momentum and ADX allows us to determine the current trend (up or down) and its strength (strong or weak). Technical Comment Momentum has firmed above 0, suggesting an uptrend may be forming. ADX is just above 20 – the trend could be solid. Analysis Palladium has strengthened after finding some support around $650. The metal has returned to above its 20 DMA and 50 DMA although it remains below the $700 psychological level. The technical environment seems sound, with its key DMAs pointing higher. Has the downtrend since the 2016 peak ended? We think it is crucial to watch the 200 WMA – a break above it would suggest the uptrend has resumed (see our weekly chart). On the upside, palladium needs to break above $700 to reinforce the mini-rally. If it can, its next target would be the 2016 high. On the downside, we are watching four critical support levels – the 20 DMA, 100 DMA, the 200 DMA and the UTL. A break of all of these would clearly indicate a negative swing in sentiment; prices would probably return to their 2016 low. Macro drivers Palladium is in consolidation mode after rising four percent last week amid a broad-based rally across precious metals. Whether the downtrend since the 2016 peak in August has ended remains open to debate. This downtrend has been largely driven by long liquidation rather than fresh selling so perhaps spec sentiment has not deteriorated significantly; longs might have been forced to liquidate after building up positions too aggressively earlier this year. Once the pressure from long liquidation wanes, the uptrend could resume. We will scrutinise Friday’s COTR to analyse trading activity over September 20-27. Supply tightness in South Africa remains a key upside risk. NUM joined AMCU, the largest union in the South African platinum industry, in declaring a wage dispute after wage talks with Amplats foundered. AMCU declared disputes with Amplats, Implats and Lonmin earlier in September. Fresh negotiations aimed at resolving the deadlock are likely to last for three or four weeks. Failure to broker a deal would result in government mediation before a possible strike notice. Given the determination of unions and workers to fight for what they want, the probability of a prolonged strike is higher than the market is currently willing to admit. Autocatalyst demand, which corresponds to 75 percent of total palladium demand, is robust given rising global growth in auto sales. In the US, sales rose 0.8 percent in the first eight months from last year’s record high. In China, sales rose 12.8 percent year-on-year over the same period, largely thanks to a government tax break. In Europe sales were up 8.1 percent year-on-year in January-August 2016, including an increase of 10 percent year-on-year in August itself. Investment and speculative flows: Speculative positioning deteriorated for a sixth week in a row in the week to September 20. As we noted in our PGM COTR, we expect speculative selling pressure to continue in the coming weeks because of preceding excessive bullishness. But we do not yet see a negative swing in sentiment. ETF demand for palladium continues to deteriorate. ETF investors have continually liquidated their holdings, suggesting a lack of conviction about the sustainability of this year’s rally.  Supply/demand balance: The global palladium market will record a larger deficit of 843,000 ounces in 2016 compared with a deficit of 447,000 ounces in 2015, according to the latest Johnson Matthey forecast. This reflects a 1.5-percent increase in total supply to 9.01 million ounces and a 5.7-percent increase in palladium demand to 9.8 million ounces. Conclusion After a strong performance last week, palladium is consolidating a little because of strong resistance at $700. With the macro environment friendly for precious metals and risks to the supply/demand balance tilted to the upside for now, especially given developments in South Africa, we remain constructive over the very short term (around one month) and the short term (1-3 months).  From a trading perspective, we will stay on the sidelines but we may be inclined to implement a long position should palladium firmly break above the 200 WMA ($710), with a tight stop-loss below the 20 DMA. All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

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