Commodities trading outlook: gold holds near 5-month high, copper dips

Gold edged up on Wednesday to trade near $1 300 an once as worries about global growth and the possible launch of a quantitative easing program by the ECB prompted investors to seek the safety of the metal. Silver rose as well, while platinum and palladium were little changed. Copper fell on demand worries, albeit holding above a recently-hit 5-1/2-year low.

Comex gold for delivery in February climbed 0.37% to $1 299.0 per troy ounce by 10:42 GMT, shifting in a daily range of $1 290.6 – $1 303.7, its highest since August. The precious metal settled 1.35% higher on Tuesday at $1 294.2.

ECB policy makers will meet tomorrow to discuss whether or not to initiate a quantitative easing program in order to fight deflation in the region.

The move to start purchasing bonds is widely expected and would probably spur increased interest towards the yellow metal. However, gold traders are concerned on how the program would affect the euro, which has been under pressure lately and is trading near 11-year lows.

Gold and the European currency tend to move in the same direction, this is not the case lately as the metal reached levels unseen in five months.

“Bullion’s recent divergence from moving in tandem with the euro to the opposite of the euro is attributed to its appeal as a perceived safe-haven asset,” said HSBC analyst James Steel, cited by CNBC.

Additionally, the US dollar took a hit as confidence in the yen increased after the Bank of Japan maintained its monetary stance.

The US dollar index for settlement in March was down 0.27% at 93.100 at 10:41 GMT, holding in a daily range of 93.315-92.970. The US currency gauge gained 0.49% on Tuesday to 93.349. 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.

“While we do not discount further safe-haven-inspired gains in gold, the yellow metal may be in need of a price consolidation, given its 9 percent gain in less than three weeks of trading so far this year,” Mr. Steel added.

Adding tension in Europe are mounting speculations around Greece’s possible exit from the Eurozone. The country might be the first to depart the 19-member group, should the Syriza party win at the elections scheduled on January 25.

Concerns over global growth also supported gold prices. The International Monetary Fund followed the World Bank into slashing its global growth outlook for this year and the next, saying that most major economies will experience a slowdown in expansion. The global economy will grow by 3.5% this year, compared to earlier estimates for 3.8% in October, while the 2016 outlook was revised down to 3.7% from 4.0%.

The IMF also asked governments to maintain accommodative monetary policies and refrain from lifting real interest rates due to the risk of deflation caused by plunging oil prices.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, climbed 11.35 tons on Tuesday to 724.24 tons. Changes in holdings typically move gold prices in the same direction.

Copper

Copper slid for a second session, dragged down by fears that slowing global economic growth, including in China, will fail to soak rising output. Investors eyed todays housing data from the US.

Comex copper for delivery in March traded 1.97% lower at $2.5430 per pound at 10:42 GMT, having shifted in a daily range of $2.5940-$2.5410. The red metal settled 0.88% lower on Tuesday at $2.5940.

Copper prices fell on Wednesday, with traders seen avoiding entering big positions before the ECBs monetary decision tomorrow, as government data showed that Chinas refined copper output surged 14% to a record 7.96 million tons in 2014 amid growing ore supply and capacity expansions.

However, with Chinas economic growth cooling down, investors feared the rising output will spur a glut. The worlds second-biggest economy expanded by an annualized 7.3% in the fourth-quarter, exceeding broad expectations for 7.2% but also pushing full-year growth down to 7.4% in 2014, the lowest since 1990 and below the governments targeted 7.5%.

On the bright side, data also showed yesterday that industrial production expanded by a better-than-expected 7.9% in December from a year earlier, beating projections for a jump to 7.4% from 7.2% in November. Retail sales also came in above projections, growing by an annualized 11.9% compared to 11.7% a month earlier.

Prices have also been drawing support after China’s State Grid Corp. said it will boost investment by 24% to 420.2 billion yuan ($68 billion), following a 14% increase last year. This would increase copper consumption in the power sector by 8.7% to 4.62 million tons, state-backed research company Antaike said. The power sector accounted for almost 50% of China’s 8.7-million-ton consumption of refined copper last year.

Market players now eyed todays US housing data, as well as tomorrows all-important monetary policy meeting by the ECB.