Commodities trading outlook: gold slides after Fed meeting, copper dips

Gold fell on Thursday to mark its third decline for the week as the Federal Reserve indicated that the US economy is on the right track to an interest rate hike. Silver, platinum and palladium fell as well. Copper headed for its worst monthly drop in more than three years amid a stronger dollar and weaker demand prospects.

Comex gold for delivery in February slid 0.84% to $1 275.1 per troy ounce by 11:18 GMT, shifting in a daily range of $1 285.4 – $1 271.2. The precious metal fell 0.45% on Wednesday to $1 285.9.

Gold tumbled following the Federal Open Market Committees positive tone about the US economy’s state of recovery. The Federal Reserve improved its assessment of the economy, describing the expansion as “solid” and substituting the “strong” depiction in its evaluation of job growth with “solid”.

Policy makers also downplayed fears of persistently low inflation, saying that despite a further decline in the near term is expected, inflation will likely gradually rise to the targeted 2% in the medium term as the effects of low oil prices diminish.

The Fed’s confidence indicated officials’ readiness to begin raising borrowing costs at some point in 2015, although the central bank repeated a pledge to stay “patient” on hiking interest rates and has previously said that they probably won’t reach “normal” levels until 2017.

An eventual increase in borrowing costs would hurt demand for non-interest-bearing assets, including gold.

“The assessments of the economy and the labor market were generally upgraded, and although there was a mention of ‘international developments’ potentially affecting the timing of a rate hike, there was no indication of a shift in the Fed’s thinking,” UBS Group AG analysts Edel Tully and Joni Teves wrote in a report, cited by Bloomberg. “U.S. monetary policy continues to be a significant challenge for gold.”

All of the 10 voting policy makers agreed with the FOMC statement, marking the first time this had happened since last June. Another first was the concern over international developments, Fed officials haven’t mentioned global markets in their statements since the group’s first meeting in 2013.

The US dollar index for settlement in March was up 0.13% at 94.850 at 11:18 GMT, holding in a daily range of 95.050-94.720. The US currency gauge gained 0.51% on Tuesday to 94.727. 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.

Investors will now be waiting for the release of the Bureau of Economic Analysis’ GDP data for the world’s largest economy. The broader projection puts economic growth at a 3.0% annual pace for the three months ended December, down from the 5% the Bureau reported for the third quarter.

However, some economists project that the recent fall in U.S. business investment spending may push the actual number below expectations.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, did not change on Wednesday and remained at 752.70 tons. Changes in holdings typically move gold prices in the same direction.

Copper

Copper extended its weekly decline as the US dollar firmed and as oil prices tumbled to the lowest in nearly six years, dulling broader demand for commodities.

Comex copper for delivery in March traded 1.96% lower at $2.4310 per pound at 11:17 GMT, having shifted in a daily range of $2.4675-$2.4235. The contract rose 0.69% on Wednesday to $2.4795. Prices, however, are down ~2.8% for the week and are headed for the biggest monthly drop since September 2011.

Apart from a firmer dollar, the industrial metal was also pressured by a continued increase in stockpiles, as well as the outlook for slower economic expansion in top consumer China.

Stockpiles tracked by the LME rose by 2 775 tons on Thursday and are up more than 30% so for the month. Reuters reported, citing industry sources, that Chinas State Reserves Bureau plans to buy around 200 000 tons of refined copper this year from international markets. However, the metal failed to draw much support following news that China plans to trim its GDP growth target to 7% this year.

Data last week showed that the Chinese economy expanded by an annualized 7.3% in the fourth quarter, pushing full-year growth down to 7.4% in 2014, the lowest since 1990 and below the government’s targeted 7.5%. Meanwhile, preliminary private data showed that the countrys manufacturing sector contracted for a second consecutive month in January.

Earlier this week, the National Bureau of Statistics reported that industrial profits in China grew last year by 3.3%, the slowest growth in records dating back to 2000. The gauge slid for a third month in December, dropping by 8%.