Commodities trading outlook: gold rises on physical demand, Fed; copper swings

Gold gained on Thursday after the US Federal Reserve announced it would not immediately raise interest rates and on signs of higher physical demand. Silver, platinum and palladium also jumped. Copper swung between gains and losses as the US dollar fluctuated and oil prices rebounded, while China showed new signs of slack.

Comex gold for delivery in February gained 0.94% to $1 205.7 per troy ounce by 12:46 GMT, having shifted in a daily range of $1 213.9-$1 188.5 an ounce. The precious metal edged up 0.02% on Wednesday to $1 194.5, but not before it dropped to $1 182.0, its lowest since December 1st.

Government data showed that Swiss gold exports rose to 232.3 tons last month, the highest this year, with top two consumers China and India, coupled with Hong Kong, accounting for 63% of shipments. Trading of the benchmark bullion spot contract on the Shanghai Gold Exchange reached the highest in 18 months.

Gold also drew support as Fed Chairwoman Janet Yellen announced after the central banks last policy meeting this year that it would keep borrowing costs near zero for “at least a couple of meetings”. Ms. Yellen also pointed out the criteria which have to be fulfilled in order to give the green light for an increase in interest rates. However, once the hike is commenced, borrowing costs would need until at least 2017 to reach normal levels, she added.

“Historically, we have seen as the economy strengthens and slack diminishes, that inflation does tend to gradually rise over time,” Ms. Yellen said. “I will be looking for evidence that I think strengthens my confidence in that view.”

An eventual interest increase next year would boost the dollar and thus hurt demand for the non-interest-bearing gold.

“The Fed statement does not imply an immediate rate hike. I think gold can stabilize between $1 180 and $1 200,” said Mark To, head of research at Hong Kong’s Wing Fung Financial Group, cited by CNBC.

Mr. To added that policy makers are likely to initiate a rate hike in the middle of 2015 and thus pressure the precious metal to reach $1 130 again.

However, low oil prices, suggesting less inflationary pressures, kept the metals demand outlook curbed.

A source of support might be an eventual selling of Russias gold reserves. The ruble fell 25% against the dollar during the previous three weeks and a drastic 6.5% interest rate hike on Tuesday failed to cushion its fall. The Russian currency stabilized on Wednesday and managed to regain some of the lost positions but speculations that Russia might tap its gold reserves still persisted.

“If that happens, we would see gold taking another step down, possibly closer to our year-end forecast of $1 150,” Barnabas Gan, an analyst at OCBC Bank, said yesterday.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained unchanged on Wednesday at 721.56 tons after two days of declines.

Copper

Copper shifted between gains and losses, trailing moves by the dollar against a basket of currencies. A rebound in oil and a healthier US economy fanned positive sentiment for the industrial metal, but recurring signs of exhaustion in China kept upward movement capped.

Comex copper for delivery in March traded at $2.8535 per pound at 12:46 GMT, down 0.59% on the day. Prices ranged between $2.8855 and $2.8480 during the day. The industrial metal fell to a 2-1/2-week low of $2.8270 yesterday before settling 0.42% higher at $2.8705, reversing two days of losses.

A dim economic outlook kept a thick shadow over the market, despite optimism stemming from the US. Prices of new homes fell by an annualized 3.7% in November, Chinas National Bureau of Statistics reported, defying government efforts to revive it. This was the third straight monthly drop.

Preliminary private data earlier in the week showed that factory activity in China slowed for the first time in seven months in December, adding to a pile of downbeat data from the world’s biggest consumer of the metal.

Stabilization of the Russian ruble and the Fed introducing the “patient” phrase in regard to raising interest rates, while also sounding a positive tone about the US economy, revived some of the lost risk appetite, sending European shares soaring.

Oil, in turn, rebounded as the recent price rout forced producers around the world to put investment plans on hold, limiting the prospects of future supply growth. The gain was also driven by speculations that the slump may have been excessive, leading the market to oversold state, and as Saudi Arabian Oil Minister Ali Al-Naimi said the global economic slowdown has added to a “temporary problem” in the market.