Gold prices consolidate

FastMarkets

Precious metals are also down across the board this morning, Tuesday March 21, with average losses of 0.5%, led by a 1% drop in platinum prices to $959.50 per oz, silver prices are off 0.5%, gold prices are off 0.4% at $1,229.42 per oz and palladium is little changed. This morning’s losses come after gains of between 0.3% and 0.9% on Monday.

Base metals trading on the London Metal Exchange are weaker this morning,  with prices down an average of 0.4%, this comes after an average decline of 0.7% on Monday.

Three-month copper prices lead the decline with a 1% drop to $5,804 per tonne, while tin prices are little changed at $20,250 per tonne. Volume has been above average with 7,455 lots traded as of 06:14 GMT.

In Shanghai this morning, the base metals on the Shanghai Futures Exchange are down an average of 1%, aluminium prices are off 0.3%, the rest are down between 1.8% for copper prices at 47,180 yuan per tonne and 0.9% for lead and tin prices. Spot copper prices in Changjiang are down 1.5% at 46,930-47,130 per tonne, which shows that prices opened up even lower, but the futures have since started to rebound. The LME/Shanghai copper arb ratio is steady at 8.13, meaning the arb window remains closed.

In other metals in China, the weakness has been more pronounced with May iron ore prices off 4% on the Dalian Commodity Exchange, while on the Shanghai Futures Exchange, steel rebar prices are off 3.9%, gold prices are down 0.3% and silver prices are off 0.4%. In international markets, spot Brent crude oil prices are up 0.2% at $51.80 per barrel and the yield on US 10-year treasuries are around 2.48%.

Equities were slightly weaker on Monday with the Euro Stoxx 50 off 0.3% and the Dow closed down around 9 points. Equities in Asia this morning are mixed, the Nikkei is off 0.3%, the Hang Seng is up 0.4%, the CSI 300 is up 0.2%, the ASX 200 is down 0.7% and the Kospi is up 1%.

In FX, the dollar index’s recent weakness has halted and the index is consolidating, it was recently quoted at 100.21. The euro is firmer at 1.0769, the sterling is consolidating at 1.2357, and the yen is weaker at 112.74 as is the Australian dollar at 0.7710. The yuan is consolidating around 6.8860, while the other emerging market currencies we follow are for the most part looking stronger, especially the rupee and rand, which suggests confidence in emerging market economies is strong, which should bode well for metal demand.

On the economic agenda there is a host of UK data on prices, including CPI and PPI, plus the latest on the public sector borrowing requirement and CBI industrial order expectations. There is a European Ecofin meeting, Bank of England governor Mark Carney and US Federal Open Market Committee member William Dudley are speaking, plus there is data on US current account and China’s leading indicators – see table below for more details.

The heavy drop in iron ore and steel prices needs to be monitored to see whether it is forewarning of a change in sentiment towards the broader metals complex. As we saw on Monday morning, early weakness in Asian hours gave way to some bargain hunting and that appears to be unfolding again this morning. Generally the metals on the LME have rebounded strongly in recent weeks but they seem to lack the buying power to absorb the overhead selling, which suggests range-bound trading. With the second quarter approaching, which is a seasonally stronger time for economic activity, we would expect prices to remain at least well supported.

Gold’s latest rebound after the US interest rate rise was expected, but with geopolitical concerns in Europe in wait-and-see mode ahead of the French election and the UK’s triggering of Article 50, it may be that gold prices struggle on the upside for a while – as such we expect more range trading until the European politics road map unfolds further.

Metal Bulletin publishes live futures reports throughout the day, covering major metals exchanges news and prices.

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SILVER TODAY: Support found but it may need to consolidate further

Short Term: Medium Term: Long Term: Resistances: R1 17.24 Dec highs R2 17.35 H&S neckline (broken at) R3 17.73 38.2% Fibo (Jul-Dec sell-off) R4 17.94 20 DMA R5 18.20 DTL R6 19.00 Nov highs R7 20.13 Sep 6 peak R8 21.13 High so far R9 21.60 Jul 2014 peak Support: S1 17.94 20 DMA S2 17.72 UTL S3 17.43 Neckline S4 17.05 50% Fibo S5 16.72 61.8% fibo S6 16.63 Jan 27 low S7 15.63 Low so far S8 15.44 Long-term UTL S9 13.64 Dec low Stochastics:Bearish Legend: DMA – daily moving average Fibo – Fibonacci retracement line H&S – head-and-shoulder pattern RL – resistance line U/DTL – up/downtrend line   Technical Comment Analysis We said in our report of February 28 that prices had overcome the DTL but look overstretched so we are not surprised prices have corrected. We remain bullish in the medium term; the inverse H&S pattern had a target of $18.95 per oz but prices have now fallen back through the neckline of that H&S pattern so the pattern has lost some of its influence.   Overall, though, we see this pullback as being a counter-trend move within an bull run. The stochastics had plunged but have now rebounded strongly. We will now get a feel for how strong underlying sentiment is by seeing whether prices can move above the late-February high. Other factors The fact silver had managed to accelerate higher despite numerous headwinds was a sign of a robust market. But the ramp-up of expectations about a US rate rise earlier in the month weighed on prices. Ahead of the rate rise, fund longs continued to liquidate – they cut 10,762 contracts in the week to March 14 – but, with the rate rise now out of the way, the rally has resumed.  We still feel that bullion will remain sought-after as a safe haven in the weeks ahead. This is especially the case while geopolitical uncertainties are growing – the UK is getting closer to Brexit, Greece faces debt repayment issues, elections loom in Europe and US President Donald Trump remains a wild card. Conclusion Prices have found support; a move up through the former neckline and the 20 DMA would be constructive. A weaker dollar should also help underpin prices but, if the dollar finds support, any rebound in the greenback would again become a headwind. Perhaps prices need to do more work consolidating this year’s gains before they have the strength to rally further. All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

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PALLADIUM TODAY: Resistance emerges

Short Term: Medium Term: Long Term: Resistances: R1 573 Dec 2015 high R2 635 Apr 2016 high R3 682 50% Fibo 2014>2016 drop ($911-452) R4 693 200 DMA R5 724-729 Former spike lows R6 727 Oct 3, 2016 high R7 735 61.8% Fibo 2014>2016 drop ($911-452) R8 747 Aug 10 high R9 767 20 DMA R10 776.50 Dec 1 high R11 797 Jan 24, 2017 high R12 798-833 Resistance band Sep 2014-May 2015 R13 803 May 2015 high Support: S1 767 20 DMA S2 766 40 DMA S3 735 61.8% Fibo 2014>2016 drop ($911-452) S4 724-27 Aug-Oct high/late-Nov support S5 733 100 DMA S6 712 UTL of Jan/Feb 2016 lows S7 682 50% Fibo 2014>2016 drop ($911-452) S8 635 Apr 2016 high S9 611 61.8% Fibo Jun>Aug rally S10 508 DTL from Sep 2014 S11 452 2016 low Stochastics:Bullish Legend: BB – Bollinger band DMA – daily moving average Fibo – Fibonacci retracement level MACD – moving average convergence divergence U/DTL – up/downtrend line Technical Comment Analysis While palladium rallied on Wednesday after the FOMC rate decision, follow-through momentum struggled yesterday, as implied by the low upper shadow on yesterday’s candlestick formation. The stochastics remain mildly bullish for now although further resistance is seen around $767 per oz from the 20 & 40 DMAs and towards the January high of $797. Support is seen at the recent lows around $740 per oz. Scaled-down support is seen from the 100 DMA at $733; it should be reinforced by UTL support from early 2016 at $712 and the 200 DMA at $693. Macro factors Global vehicle sales growth was strong last year, supporting rising demand for emission control devices. Passenger vehicle sales in the three largest markets (the USA, China and the EU) increased by 8.5% in 2016 to 56.5 million vehicles. Sales in Europe and, in particular, China enjoyed strong growth, with passenger vehicle sales surging by 6.8% and 13.7% respectively. But we believe sales will grow far more modestly in 2017; sales in China are forecast to climb a further 5% in 2017 to 29.4 million vehicles while sales in Europe are forecast to grow only 1% due to political and economic uncertainties. Passenger vehicle sales in China increased 8.8% in January-February and by 6.2% year-on-year in Europe. Sales in the USA contracted by 1.4% year-on-year in January-February. Net length among Nymex speculators increased slightly in the week to March 7. It now totals 17,036 contracts and remains elevated, up 2,850 contracts or 20% in the year to date. But a more polarised view has emerged after funds added 979 contracts of new longs in addition to a 484-contract build in shorts. This suggests palladium is vulnerable to long liquidation or from wider re-engagement by shorts. ETF holdings stand at 1.54 million oz compared with a recent low of 1.522 million oz following recent inflows in the South Africa-listed NewPalladium fund.   Palladium’s fundamentals will continue to improve – fallout from Volkswagen’s Dieselgate scandal will lead to a shift away from diesel-powered vehicles in Europe. Carmaker Renault has suggested diesels could disappear from most of its European car range. Nornickel – the world’s largest palladium producer – reported that palladium output from its own Russian feed totalled 609,000 oz in the fourth quarter, down 1% quarter-on-quarter. Full-year output from the company’s own Russian feed totalled 2.518 million oz, slightly above forecast but down 2% year-on-year due to lower ore grades and the reconfiguration of downstream production. Nornickel has output guidance of 2.63-2.73 million oz for 2017. Johnson Matthey forecasts another year of substantial deficit in the global palladium market in 2017, with demand set to continue to outstrip growth in supply despite rising supply from recycling. This will build on the 651,000-oz deficit in 2016 forecast by JM. It sees total supply rising 1% to 9.03 million oz – a near-10% rise in recycling volumes will offset static mine production. Palladium demand from the autocatalyst sector will increase 2% to 7.8 million oz, fuelled by growth in sales of petrol-powered cars. Conclusion Palladium has rallied in line with risk appetite after economic projections from the Fed were deemed less hawkish than markets had been expecting. The background fundamentals remain constructive, with the global auto fleet set for another year of expansion, albeit at a modest pace, keeping the market in another year of supply deficit. But the emergence of overhead resistance suggests that downside risks remain in the short term, particularly while the speculative net length remains elevated. All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

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