Commodities trading outlook: gold, silver and copper futures

Gold prices erased earlier gains during midday trade in Europe today, after the US posted encouraging economic data. Investors now eye the upcoming release of minutes from Feds July meeting. Meanwhile, copper prices were steady after the US data, awaiting crucial Chinese figures later this week.

Gold futures for December settlement traded at $1 299.7 per troy ounce, up 0.03%, by 13:41 GMT on the Comex in New York. Prices ranged from $1 297.0 to $1 303.7 per troy ounce. The precious metal dropped 0.5% on Monday.

Meanwhile, silver for September stood at $19.595 per troy ounce, down 0.20%. The contract added 0.56% on Monday, having lost ~2% last week.

Several key readings on the US economy were posted earlier today. July CPI was logged at 2.0% on an annual basis, as expected and matching the Fed’s current inflation target, while core CPI, which excludes the more-volatile food and energy, was reported at 1.9%. CPI is a major force on currency valuation and economic health, as it is a leading indicator for consumer spending, which generates about 80% of US GDP.

Meanwhile, housing starts grew by 15.7% on a monthly basis in July, while building permits increased by 8.1%, adding to positive outlooks for the worlds largest economy and supporting the dollar.

By 13:18 the US Dollar Index, which measures the greenbacks strength against other major currencies, was up 0.3% for the day at an 11-month high of 81.87.

Since gold, like many other commodities, is mostly traded in dollars, the value of the US currency plays a major role in the metal’s investment appeal, with a stronger dollar lifting the price of gold to foreign currencies and vice versa.

FOMC minutes

The Fed’s July meeting minutes will be released this Wednesday, as traders seek first-hand cues for rate-hike and quantitative easing (QE) outlooks for the world’s largest economy. The Fed kept the benchmark interest rate unchanged at 0.25%.

If investors see a more hawkish stance on rates it would support the dollar, as a higher borrowing cost for the US currency sooner than previously thought would be on the table.

Additionally, investors are expecting a close of the Fed’s QE program by late 2014, as suggested by regular and systemic $10 billion trims in monthly spending. Should traders read signs of a premature close of the program in the minutes, it would be supportive for the dollar, but would hurt equities.

Generally, equities have an opposite correlation with safe havens, such as gold. When investors see fewer investment risks, they channel money into the riskier, but more profitable equities, such as stocks, lifting their price and hurting havens.

Ukraine, Middle East

The conflict in Ukraine took a grizzly turn yesterday, as a convoy of refugees fleeing from the embattled city of Luhansk, escorted by Ukrainian military, came under attack. The convoy was hit by Grad rocket artillery and by mortar fire, Ukrainian authorities reported, adding that there were no survivors and women and children were among the casualties.

Kiev said “terrorists” armed by Russia were behind the attack, while pro-Russian rebels put the blame on the Ukrainian military.

Earlier, Kiev reported it has destroyed a column of armored vehicles entering Ukraine from Russia, while another column of rocket launchers was also seen entering rebel-controlled territory from Russia.

Elsewhere, President Barack Obama said yesterday that US forces have carried out 35 air strikes in Iraq, which allowed for the recapturing of the Mosul dam and impaired the Islamic State (IS) offensive, and will continue limited air strikes against the rebels.

Earlier, Kurdish and Iraqi forces retook the Mosul dam – Iraq’s largest, with the help of U.S. air support and now need to clear a 2-kilometer stretch of mines and bombs.

In the Gaza Strip, a ceasefire which came into effect on Wednesday and was due to expire on Monday was extended for another 24 hours following talks in Cairo, Palestinian and Israeli officials said. Palestinian envoys said the “war is behind us now”, signaling an extension of the ceasefire. Israel, however, has demanded a full demilitarization of Gaza, something seen as unacceptable by Hamas, as a precondition to any permanent peace.

More than 2 000 Palestinians, mostly civilians, died in the latest episode of the conflict, with 67 Israelis also killed. The UN and the international community have largely condemned Israel’s indiscriminate fire in a densely populated area, resulting in an enormous loss of life.

Copper

Copper futures for September delivery traded at $3.1120 per pound at 13:43 GMT on the Comex in New York, up 0.10%. Prices ranged from $3.1055 to $3.1220 per pound. The contract added 0.19% on Monday, after losing about 1.5% last week.

The positive readings on US CPI and housing also supported copper, as the red metal is widely used in construction, and housing data is a major driver for prices.

Elsewhere, HSBC and Markit will post their preliminary reading on Chinese manufacturing for August this Thursday. The report is highly anticipated by traders, as China is the leading market for industrial metals, with a 40% share of global copper demand.

“The metal is heavily dependent on the data from the U.S. and China, which are both heavy users of metals,” Naeem Aslam, chief market analyst at Ava Trade, said for Reuters. “Moreover, we also have the FOMC meeting minutes due tomorrow and as long as the Fed stays accommodative, we could see another push towards the upside for the metal.”

Analysts expect a 51.5 manufacturing PMI be logged by HSBC, which would mean the third month of expansion in the sector, spelling brighter outlooks for copper bulls.

Previously, Chinese data pressured the red metal on Monday, as house prices were reported to have fallen for the third straight month. Last week China reported a drop in copper imports, alongside further below-par economic data, pressuring the red metal to lose some 1.5%.