Commodities trading outlook: gold hits 2-1/2-week high as dollar eases, copper falls on China data

Gold held near the highest level since end-October as the US dollar fell against the euro amid improving economic sentiment in Europe and speculations the ECB might purchase assets, including gold, to battle low inflation. Copper declined on falling China housing prices. Silver, platinum and palladium rose.

Comex gold for delivery in December rose 1.28% to $1 198.6 per troy ounce by 12:54 GMT. Prices held in a daily range between $1 204.1, the highest since October 30th, and $1 182.7. The contract slid 0.18% to $1 183.5 on Monday after it surged 2.07% on Friday to $1 185.6 and settled the week 1.4% higher.

ECB Executive Board member Yves Mersch said that the central bank may adopt unconventional measures to counter low inflation, including the purchase of assets such as gold, exchange-traded funds, sovereign debt, and even real estate.

A weaker dollar also benefited the precious metal as the euro gained on the greenback following better-than-expected economic sentiment.

Investor confidence in Germany, the continents leading economy, rose for the first time in 11 months. The ZEW Center for European Economic Researchs Economic Sentiment index rose to 11.5 in November from -3.6 in October, compared to analysts projections for a jump to 0.9. The Current Conditions index also marked an improvement, having risen to 3.3 from 3.2 a month earlier.

The Eurozone as a whole saw rising investor sentiment as well, with the corresponding ZEW Economic Sentiment index jumping to 11.0 from 4.1 in October, the first increase in five months.

The US dollar index for settlement in December slid by 0.30% to 87.745 by 12:56 GMT, having shifted in a daily range of 87.970 and 87.575. The US currency gauge gained 0.48% on Monday to 88.010.

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%.

Assets in the SPDR Gold Trust, the biggest gold-backed ETF and a proxy for investor sentiment on the precious metal, rose to 723.01 tons on Monday from Friday’s six-year low of 720.62. This was the first inflow the fund has seen since November 3rd.

Nevertheless, upside momentum remained limited by a prevailing bearish sentiment as the Fed is expected to begin raising interest rates at some point next year. Attention will be focused on tomorrow’s Fed minutes from the October 28-29 policy meeting, which investors will scour for clues on policy makers’ stance on easy money supply and a possible time table for the expected interest rate hike.

In India, the world’s second-biggest consumer, the central bank is in talks with the government to further curb gold imports in order to address concerns of a rising trade deficit.

Copper

Copper drifted further away from the prior sessions two-week high as falling Chinese property prices fanned pessimism about demand from the metals top consumer. Japan slipping into recession also continued to haunt the red metal.

Comex copper for delivery in December fell 1.22% to $3.0025 per pound by 12:54 GMT, having shifted in a daily range of $3.0430-$2.9940. The industrial metal slid 0.23% on Monday to $3.0395 after it earlier rose to $3.0610, the highest in two weeks.

The contract slid after Chinas National Bureau of Statistics reported that house prices slid for a second month in October, by an annualized 2.6%, underscoring a persisting property sector downturn. China accounts for around 40% of global copper consumption and the housing sector, in turn, is a major consumer of the metal used for wiring and construction.

A report by the Federal Reserve showed yesterday that industrial output in the US unexpectedly contracted by 0.1% in October, rebutting projections for a 0.2% jump. While manufacturing production rose modestly, by 0.2% as opposed to projections of 0.3%, manufacturing output in the New York region rebounded, albeit trailing expectations.

Demand outlook received a heavy blow after Japan unexpectedly slipped into recession in the third quarter. A preliminary estimate showed that the Japanese economy shrank by an annualized 1.6% in the three months through September after a 7.3% contraction in the previous quarter. 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.

Meanwhile, Goldman Sachs cut its copper price forecast for 2015, citing a stronger US dollar and weaker oil prices that would push down marginal operating costs for production. The investment bank saw an average price of $6 217 a ton from $6 400 previously. Analysts surveyed by Reuters expected a price of $6 724 a ton, pressured by a global supply surplus of 350 000 tons. Goldman said that prices could fall to as much as $5 600 a ton, if Chinas State Reserve Bureau stops purchasing copper.

However, the market drew some support on Tuesday amid rising risk appetite after investor confidence in Europe improved in November, while Japanese Prime Minister Shinzo Abe called a snap election and deferred a second sales tax hike by 18 months.

Mr. Abe will seek voter support in the upcoming elections for his package of economic reforms, known as Abenomics, which, if received, might lead to more stimulus measures.