Commodities trading outlook: gold clings on to gains, copper retreats as Japan enters recession

Gold held on to gains from the prior session after short covering sent the precious metal soaring through a key resistance level. A strong dollar, however, kept gains limited. Copper retreated from a two-week high amid concerns of softening global demand after the Japanese economy slipped into recession. Silver, platinum and palladium fell.

Comex gold for delivery in December was up 0.10% at $1 186.8 per troy ounce at 12:58 GMT, having shifted in a daily range between $1 193.6, the highest since October 31st, and 1 181.3 an ounce. The precious metal gained 2.07% on Friday to $1 185.6, the highest close since October 30th, and settled the week 1.4% higher.

Friday’s short-covering rally was extended on Monday but gains were limited by a prevailing bearish sentiment as the Fed is expected to begin raising interest rates at some point next year, or even earlier, given that the central bank’s objective of full employment, among others, is reached sooner than expected.

Holding above the key $1 180 level may allow gold to test $1 200 and possibly the next major resistance point of $1 230. However, it will be a tough ride as the bearish factors that first sent the metal sliding to the lowest in four and a half years were unchanged and still at play.

Recent upbeat data from the US have shown the US economy is on its path of robust recovery, and although the Federal Reserve has pledged to keep borrowing costs at rock bottom for “considerable time”, an interest rate hike is slated for the next 12 months.

The greenback remained overall strong. The US dollar index for settlement in December stood 0.19% higher at 87.760 at 12:58 GMT, having shifted in a daily range of 87.830-87.230. The US currency gauge fell 0.18% to 87.593 on Friday after it reached an intra-day high of 88.365, the highest since June 2010.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP and a proxy of investor sentiment, were unchanged at 720.62 tons on Friday, snapping eight straight sessions of declines. This was the lowest level since September 2008.

Meanwhile, data by the US Commodity Futures Trading Commission showed on Friday that speculators cut their long bets on gold futures and options for a third consecutive week.

Investors also eyed an upcoming referendum in Switzerland on November 30th when voters will decide whether the country’s central bank should keep at least 20% of its assets in gold, compared to the current 8%.

Copper

Copper fell from the highest in two weeks as Japans economy unexpectedly entered recession, exacerbating fears of a slowing global economy that would erode demand for the industrial metal.

Copper futures for delivery in December slid 0.56% to $3.0295 per pound by 12:58 GMT, having shifted between a two-week high of $3.0610 and $3.0230 during the day. The red metal rose 1.74% on Friday to $3.0465 a pound, the highest close since November 3rd.

The contract dropped on Monday after Japan slipped into recession following a second consecutive quarter of economic contraction. According to a preliminary estimate, Japan’s economy shrank by an annualized 1.6% in the three months through September, confounding analysts’ estimates for a 2.1% growth. Moreover, the previous quarter’s 7.1% contraction was revised down to 7.3%.

Quarter-on-quarter, the world’s fourth-biggest consumer of the metal saw its GDP growth fall 0.4%, following a downward-revised 1.9% contraction in the preceding period.

Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said for Bloomberg: “Japan’s figures have proved disappointing across the board. Unless the economy gathers pace again soon, this is also likely to have a negative impact on demand for metals.”

Moreover, data by Chinas statistics bureau showed on Saturday that Chinas refined copper output surged by an annualized 13.6% in October to 732 746 tons. Additionally, copper is expected to be the only base metal with a supply surplus in 2015, according to forecasts by analysts surveyed by Reuters.

A slew of downbeat data from China last week also weighed on the metal. Consumer prices in October were flat on a monthly basis, while year-on-year the CPI index was unchanged at 1.6%. Producer prices, on the other hand, fell more than projected, having posted a 2.2% contraction.

Another report showed on Thursday that China’s industrial output expanded at an annualized pace of 7.7% in October, compared to forecasts and the preceding period’s 8.0% growth. Investment growth was near a 13-year low, while the amount of new loans lent by Chinese banks fell by 36% in October, pointing to tightening credit conditions and raising further concerns toward the red metal’s demand outlook.

Market players eyed this week’s industrial production, inflation and housing data from the US to assess activity within the worlds largest economy, as well as minutes from Fed’s October 28-29 meeting for further clues of policy makers’ stance on easy money supply.