Commodities trading outlook: gold, silver futures retreat as dollar gains, copper up

Gold and silver futures reversed some earlier gains during midday trade in Europe today, as a year-high dollar was weighed with prospects of further confrontation in Ukraine. Meanwhile, copper futures climbed, after Chinese foreign trade was seen as positive for the red metal.

Gold futures for December delivery on the Comex in New York traded at $1 266.1 per troy ounce, down 0.09%, at 12:42 GMT. Prices ranged from $1 265.4 to $1 272.6 per troy ounce. The contract dropped 1.6% last week, reaching a three-month low at $1 258.0.

Silver for December delivery stood for a 0.27% daily gain at $19.208 per troy ounce.

Gold had dropped to a three-month low on Friday, as investors had expected a big nonfarm payrolls number in the US. The reported figure, however, was thoroughly disappointing, with new jobs reported at just 143 000, in comparison with 225 000 expected.

“Previous data had suggested the economy was gaining traction, but [Fridays] number is a bit of a disappointment, and the Fed may have to maintain lower interest rates,” Chris Gaffney, the senior market strategist at EverBank Wealth Management in St. Louis, said for Bloomberg. “This was a good number for gold.”

Earlier, on Thursday the European Central Bank cut deep into the central lending rate, lowering it to just 0.05%, as well as announcing a €1tn bond-purchasing program, as the Eurozone struggles to revive growth.The EU economy logged a 0% quarterly growth later on Friday, supporting the validity of ECB’s decision. The Bank also announced two bond-purchasing programs which would inject a total of more than €1tn into the Eurozone economy.

The sharp turn in European policy shocked markets, sending the euro to a fresh 15-month low against the dollar.

“Europe’s going to need to continue to provide stimulus, whereas here in the US, our central bank is going to be pulling back the reins,” Brian Hicks, a fund manager at US Global Investors in San Antonio, said for Bloomberg. “Those two trends will continue to push the dollar higher and be a headwind for gold.”

The value of the US dollar is a major influence on gold prices, because gold, like most other commodities, is denominated in dollars. Hence, a stronger greenback increases the cost of gold to foreign currencies, lowering the precious metal’s investment appeal.

The US dollar climbed to a new 14-month high against six other major currencies today, though geopolitical tensions kept gold well supported against pressure.

Ukraine

A truce between Ukraine and pro-Russian separatists remained largely intact, albeit fragile, eroding gold’s safe haven appeal. Kiev and pro-Russian rebels met in Minsk, Belarus, last week signed a preliminary agreement for a ceasefire as well as a roadmap for lasting peace in the region.

Fresh fighting was reported on Sunday near the Donetsk airport, however, spurring fears that the truce might be short-lived. Earlier, one women was reported to have been killed and four injured on Saturday by shelling in Mariupol, a closely contested town.

European diplomats approved the Union’s broadest measure of sanctions against Russia on Friday. Hours after the Ukraine-rebels accord was signed, EU ambassadors sketched the bloc’s second package of economic sanctions, which bar Russian state-owned energy and defense companies from raising capital in the EU. The new penalties are pending EU national governments’ approval, due to be discussed today.

Russia’s Foreign Ministry warned that if new EU sanctions are imposed, Russia “certainly will respond,” Russian news agency ITAR-Tass reported.

Gold holdings at the SPDR Gold Trust dropped ~5 tons on Thursday for a total of some 10-ton drop last week, reaching the lowest level in more than two months, losing in sync with gold prices. Declining assets at ETPs signal lower investor interest in the metal.

Copper

Copper contracts for December, the most-traded contract in New York, stood at $3.1975 per pound, up 0.88%.

Data by the Chinese customs administration showed on Monday that China’s exports surged by an annualized 9.4% in August, while imports contracted by 2.4% after sliding 1.6% in July, reflecting lower domestic demand, though also stoking speculation that authorities will undertake a “mini stimulus” program.

Imports of copper, however, were unchanged at 340 000 tons, which proved quite positive for the red metal, as a sharp fall had been expected.

China is the worlds leading consumer of industrial metals, accounting for about 40% of global copper demand.

Previously, the disappointing payrolls figure from the US failed to pressure copper, though the metal is still hovering near a four-year low.

Investors now turn their attention to upcoming Chinese data on loans, investments and industrial production.