Commodities trading outlook: gold, silver and copper futures

Gold and silver futures were pressured by robust US data during midday trade in Europe today, with the dollar looking stronger on the back of a 4.1/2-year-high GDP growth. Meanwhile, copper futures were headed for sizable weekly losses.

Gold futures for December delivery on the Comex in New York traded at $1 220.2 per troy ounce by 12:37 GMT, down 0.14%. Prices ranged from $1 218.4 to $1 232.7 per troy ounce. The contract is on track to add ~0.4% this week, while it also reached a nine-month low at $1 206.6.

Silver for December delivery stood for 0.47% daily gain, and still near a four-year low, at $17.520 per troy ounce.

Final readings on US GDP growth for the second quarter of 2014 were released today, meeting expectations of a 4.6% growth on an annual basis, logging a 4.1/2-year high and reinforcing confidence in the recovery of the US economy.

The US dollar climbed to a new four-year high against a complex of other major currencies yesterday, pressuring the precious metals complex to multi-month lows, after readings showed new home sales in the US surged 18% in August to reach the highest annualized rate in six years at 504 000. The figure is a leading indicator for the strength of the retail market, which is the largest single sector in the US economy, accounting for 13% of US GDP, and as the reading thrashed expectations, the US dollar surged.

The increasing value of the US currency increases the price of dollar-denominated commodities, such as gold, to holders of other currencies, lowering interest in the metal.

Relying on data supporting the quick recovery scenario, the Fed made dollar-bullish announcements last week, upping the targeted rate by the end of 2015.

Meanwhile, the strengthening of the dollar was further supported by weakness in the greenback’s top competitor, the euro.

A string of weak economic data prompted the European Central Bank (ECB) to trim the central lending rate to the historic low of 0.05% earlier this month and set the stage for a €3tn stimulus program. The news, and the following further downbeat economic data, pressured the euro to a two-year low against the dollar this week.

Meanwhile, US-led air strikes on Islamic State (IS, ISIS, ISIL) targets in Syria has so far failed to spook markets. Investors seem to regard the actions as positive for the security of the region, shrugging off the only force on the bull side lately.

Goldman Sachs’s Jeffrey Currie maintained the bank’s forecast for gold to drop to $1 050 by the end of 2014.

Copper

Copper contracts for December, the most-traded contract in New York, stood at $3.0390 per pound, up 0.30% for the day. The red metal looks to settle the week some 1.7% lower.

US GDP data failed to offer much support to the industrial metal, which, as a base commodity, usually follows wider economic trends.

Longer-term surplus projections were too heavy to overcome, and are steering the metal towards weekly, and monthly, loss.

“The time spreads reflect a market where stocks are low but the expectations is that there is going to be a big increase in supply,” Gayle Berry, metals strategist at Jefferies Bache, said for Reuters.

Earlier this week, new home sales figures offered significant support to the red metal. An average home has some 300-500 pounds of copper, making the real estate sector one of the top copper markets, and housing data a leading gauge for copper demand.

The stronger dollar, however, pared much of the positive sentiment.

Investors now eye key data from China, the worlds top consumer of industrial metals with a 40% share of total copper demand, due next week.

The red metal was supported by a better-than-expected reading on Chinese factories by HSBC and Markit. The companies put their manufacturing PMI at 50.5, signaling an expansion in the sector, which accounts for a significant chunk of Chinese copper consumption.