Commodities trading outlook: gold prices steady ahead of Fed minutes, copper gains

Gold prices remained contained in a very narrow range today, while silver gained, as investors await the detailed report from Feds July meeting. Meanwhile, copper futures added a sizable chunk as traders weighed US housing data.

Gold futures for December delivery traded unchanged for the day at $1 296.8 per troy ounce by 13:27 GMT on the Comex in New York. Prices ranged from $1 292.4 to $1 299.3 per troy ounce. The contract dropped 0.2% on Tuesday, pressured by upbeat US data.

Silver for September delivery stood for a 0.56% increase at $19.520 per troy ounce. Silver dropped 1.14% on Tuesday.

Several key readings on the US economy were posted yesterday. 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. It is also the most important gauge used by the Federal Reserve to decide on monetary policy, including interest rate.

Meanwhile, housing starts and building permits both logged significant growth on a monthly basis, adding to positive outlooks for dollar bulls.

By 6:42 GMT today the US Dollar Index, which measures the greenback’s strength against other major currencies, was up 0.11% for the day at 82.03, having reached an 11-month high of 82.06 earlier.

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.

“The inflation and housing data helped support expectations for higher interest rates,” Xia Yingying, an analyst at Nanhua Futures Co., said for Bloomberg. “The focus now moves to the Fed minutes and the Jackson Hole meeting.”

Fed minutes

The Fed’s July meeting minutes will be released later today, 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.

“We know that rates aren’t going to go up tomorrow, but we’re starting to place bets down the road,” Rich Ilczyszyn, chief market strategist at iiTrader, said for The Wall Street Journal.

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.

US stocks climbed yesterday, supported by the positive readings on US CPI and housing. S&P 500, the broadest gauge among the top indices, added 0.5% on Tuesday, after a further 0.85% gain on Monday. Dow 30 Industrial was up 0.48, having added 1.08% on Monday, while Nasdaq 100, which excludes financial institutions climbed to the all-time highest close of 4 040.13.

Meanwhile, assets at the SPDR Gold Trust, the largest exchange-traded gold fund, added 1.5 tons on Tuesday, for a total of some 4 tons this week. Increasing volumes at the fund signal higher investor interest in gold, seen as a safe haven in times of economic or political upheaval.

Ukraine, Middle East

Heavy fighting and street-to-street battles were reported from Luhansk, one of two remaining pro-Russian separatist bastions. The Ukrainian military said advances have been made in Luhansk, and Kiev now controls one of the districts. Several smaller towns were also captured.

Civilians are reported fleeing by the thousands daily, with several hundred thousand already displaced by the conflict, while the death toll has climbed to over 2 000, the United Nations says.

A civilian convoy, evacuating wounded non-combatants, came under attack on Monday, killing at least 17 people, Kiev said. The convoy was escorted by Ukrainian military and was not moving in an established humanitarian corridor. Kiev accused the rebels of the attack, while separatist leaders put the blame on the Ukrainian military.

Meanwhile, Ukrainian sources said another convoy of dozens of Russian armored vehicles entered rebel-held territory late on Tuesday, after 2 other groups of Russian military machines were detected, one destroyed by Ukrainian forces.

In the Gaza Strip, an extended truce was broken on Tuesday as Israel responded to rocket fire. Israel said that around 50 rockets were fired from Gaza yesterday and 20 more were launched on Wednesday, though all failed to cause harm or damage. A Hamas official in Cairo said Israel had been targeting Mohammed Deif, the head of its armed wing.

Local medics said that eight people, allegedly from the same family, were killed by an Israeli strike in central Gaza on Wednesday morning and, according to officials, around 100 Palestinians have been wounded since the truce ended. In all, more than 2 000 Palestinians and almost 70 Israelis have been killed since Israel began its attacks on Gaza on July 8th.

Copper

Copper futures for September delivery traded at $3.1330 per pound, up 1.44%. The red metal lost 0.66% on Tuesday.

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.

“The economic data released in the U.S., which is one of the biggest consumers of copper, was extremely strong and this has certainly pushed the metal higher,” Naeem Aslam, chief market analyst at Avatrade, said for Reuters. “Having said that, we are seeing very low volume in terms of trading for the metal as investors are reluctant to put further money to work ahead of the FOMC (Federal Open Market Committee) meeting due later this afternoon.”

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.

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.