Commodities trading outlook: gold, silver and copper futures

Gold and silver climbed during midday trade in Europe today, after Kiev reported a “Russian invasion” was taking place, with government forces retreating from a key town. Meanwhile, copper futures were lower amid lackluster demand.

Gold futures for December delivery on the Comex in New York traded at $1 292.5 per troy ounce, up 0.71%, at 14:02 GMT. Prices ranged from $1 283.0 to $1 297.6 per troy ounce. The precious metal dropped 0.1% on Wednesday.

“Investors continued to keep a wary eye on the escalating tensions in Ukraine,” Liu Xu, a Beijing-based analyst at Capital Futures Co., said in a report cited by Bloomberg. “Geopolitical headwinds helped increase haven demand for gold.”

Silver for September delivery stood for a 1.03% daily gain at $19.605 per troy ounce.

Ukraine

German Chancellor Angela Merkel has demanded an explanation by Russian President Vladimir Putin of numerous reports of Russian troops fighting in Ukraine, while the US said a Russian-directed counter-offensive in the region was taking place. Ukrainian President Petro Poroshenko canceled a visit to Turkey, saying his place is in Kiev after Russia has “deployed troops” in Ukraine.

Reports of dozens of Russian armored vehicles entering Ukraine yesterday added to pressure on Russia, after several other such cases recently and the capture of 10 Russian paratroopers by Ukrainian military inside Ukraine.

For the first time in quite a while, Russian media have questioned the actions of the Kremlin and scrutinized its ambiguous and shady stance on the reports, reminding of the similar circumstances amid which Chechnya and Afghanistan have been invaded in the past.

Russia has repeatedly denied accusations that it supports the rebels in any way. A growing number of Russian heavy weaponry, including the system used to bring down the civilian airliner in June, and so-called “volunteers”, in addition to Russian troops reported on numerous occasions as fighting alongside the rebels and mysterious burials of Russian soldiers, who officially died on “military exercises”, raise serious questions.

Investors, however, seem to disregard the quite real possibility of a direct military confrontation between Russia and Ukraine, and all the geopolitical and economical risks that it brings, focusing on US economic data and its impact on rate hike outlooks.

US data

“The U.S. interest rate story is what’s really going to move gold over the next five years,” John Payne, a senior market analyst with Daniels Trading in Chicago, said for The Wall Street Journal.

Preliminary figures on US GDP growth for the second quarter of 2014 were posted today, to log the highest reading in almost four years at 4.2% growth on an annual basis, well above expectations. Meanwhile, jobless claims were little changed from a week ago, recording 298 000 new applications. Pending home sales will also be reported today amid projections for a slight monthly increase.

Meanwhile, a couple of readings on the Eurozone are expected, as investors look to further reinforce speculation of a stimulus program by the ECB. German unemployment rate was unchanged at 6.7% in July earlier today, ahead of key readings on CPI and Bloc-wide unemployment for the Eurozone tomorrow, with consumer inflation set to log at 0.3%, dangerously close to dipping into deflation.

Positive US readings and negative EU readings support the dollar. Since gold, like most other commodities, is denominated mostly in dollars, a stronger greenback directly increases the cost of gold to foreign currencies, lowering the metal’s investment appeal.

The US Dollar Index, which measures the strength of the US currency, reached a 13-month peak on Monday and is still near that high, pressuring gold.

Copper

Copper contracts for December, the most-traded contract in New York, stood at $3.1520 per pound, down 1.45%. The red metal dropped 0.4% on Wednesday.

The upward revision of US GDP growth was unable to lift copper, as lackluster demand weighed in the backdrop of rising supplies.

“In the short run we still have a positive growth story on our side. China is holding ground, we do expect Europe to come up a little bit, U.S. growth accelerates,” analyst Dominic Schnider at UBS in Singapore, said for Reuters. “But into 2015 we have a decently supplied market. Thats still there, with 200,000-400,000 tonnes of surplus.”

The stronger dollar also weighed on the red metal.

“Strength in the dollar is certainly weighing on the copper price, which is making it expensive for traders to buy the metal,” Naeem Aslam, chief market analyst at Ava Trade, said for Reuters. “Having said that, it is important that we emphasize the latest U.S. durable goods data, as it gives us a clear idea about the demand for metal.”

US durable goods orders were logged for a mixed read yesterday. Overall, orders added 22.6%, the biggest monthly increase on record, as the figure was boosted by a surge in orders for commercial airplanes for Boeing last month. Core orders, which exclude volatile items such as airplanes, were logged down 0.8% on a monthly basis, paring much of the positive vibes from the overall figure.