Commodities trading outlook: gold retreats on stronger dollar, equities; copper rises on US economy optimism

Gold extended overnight losses on Thursday as a rebound in equities and stronger US economic data curbed the precious metal’s appeal as a hedge. Copper advanced as steady oil prices eased investors jitters and signs of US economic strength boosted demand prospects.

Comex gold for delivery in February dropped 0.17% to $1 208.7 per troy ounce by 13:10 GMT, having shifted in a daily range of $1 214.4 and $1 204.2. The precious metal fell 0.71% on Wednesday to $1 210.7, ending a three-day streak of gains.

“We see a bit of calm returning to the equity and oil markets, so gold takes a back seat again,” Wang Tao, a strategist at CITIC Futures, wrote in an e-mail, cited by Bloomberg. “We continue to expect that the Fed will raise rates this year, which will drive the dollar higher and pressure gold.”

The yellow metal reached its highest level in three weeks earlier this week due to rising concerns that Greece will be the first country to leave the Eurozone, should the Syriza party win at the elections scheduled on January 25.

However, gold reversed course after equities were aided by stronger US economic data and oil prices rebounded from fresh 5-1/2-year lows reached this week. Data by Automatic Data Processing showed that private US non-farm employers added 241 000 jobs in December, compared to projections for 226 000, while November’s reading was revised up to 227 000. The ADP figure is generally considered as an early employment estimate before the government’s all-important jobs report is released two days later.

The US dollar index for settlement in March was up 0.60% at 92.670 at 13:09 GMT, holding in a daily range of 92.760-92.220. The US currency gauge gained 0.41% on Wednesday to 92.115. A stronger greenback makes dollar-denominated commodities more expensive for holders of foreign currencies and curbs their appeal as an alternative investment, and vice versa.

Minutes from FOMC’s December meeting showed that policy makers were unlikely to begin raising interest rates at least for their next couple of meetings, i.e. before April 28-29. However, dropping the pledge to keep borrowing costs at rock bottom for “considerable time” and replacing it with a “patient” stance suggested a lift-off at some point in 2015 amid strong consumer confidence and payroll gains.

The committee also mulled over overseas risks, including the recent oil price rout, and concluded that they were largely offset by robust domestic growth. Concerns were also expressed about inflation running below Fed’s 2% target for 31 straight months, with the central bank’s preferred gauge – personal consumption expenditures – standing at 1.2% for the year through November. However, the committee said it expects inflation to near the targeted level as the labor market improves and the effects of cheaper energy diminish.

Reflecting underlying bearish sentiment toward the precious metal, assets in the SPDR Gold Trust, the biggest bullion-backed ETF, fell for a second consecutive day by 2.99 tons on Wednesday to 704.83 tons, the lowest since September 2008. Holding changes typically move gold prices in the same direction. Assets fell 11% last year compared to a 41% drop in 2013.

Copper

Copper gained on Thursday, distancing itself away from the lowest in more than four years, as stable oil prices brought calmness to broader commodity markets and as the outlook for a stronger US economy and expanded stimulus in Europe boosted demand prospects.

Comex copper for delivery in March rose 0.56% to $2.7740 per pound by 13:10 GMT, having shifted in a daily range of $2.7940-$2.7605. The contract fell 0.31% on Wednesday to $2.7585 a pound. Prices slid to $2.7440 on Monday, the weakest level since October 2009.

The US economys brighter outlook, coupled with interest rates set to remain low for at least several more months supported the metals market. The US Labor Department reported that the number of Americans who filed for initial unemployment benefits last week slid to 294 000 from 298 000 a week earlier.

Meanwhile, tomorrows all-important US non-farm payrolls are expected to come in at 240 000 in December after a jump to 321 000 in November. If confirmed, this would be the 11th straight month of job growth above 200 000.

Contrasting to the well-faring US economy, Europe showed new signs of continued weakness. German factory orders contracted in November, while business and consumer confidence in the Eurozone slid in December and consumer prices contracted last month for the first time since 2009, fueling speculations for full-on quantitative easing.

Meanwhile in top consumer China, economic growth likely eased to 7.2% in the fourth quarter, according to a Reuters poll.

Overall, business activity in China expanded at a faster pace in December thanks to a healthier services sector, but a fractional decline in output at manufacturers spurred speculations for softer demand for base metals.