Commodities trading outlook: gold rises as US rate hike seen delayed, copper tracks oil lower

Gold edged up on Thursday to end two days of losses after minutes from the Federal Reserve’s last meeting indicated that some policy makers were keen on keeping interest rates low, although a possible deal between Greece and its creditors eased fears of a Greek euro-area exit. Copper fell as oil prices tumbled while Chinese markets remained closed for the Lunar New Year holiday.

Comex gold for delivery in April gained 1.50% to $1 218.2 per troy ounce by 10:38 GMT, having shifted in a daily range of $1 221.0-$1 211.1 an ounce. The precious metal fell 0.70% the previous session to $1 200.2, but not before it touched $1 197.2, its lowest since January 5th.

Fed officials were worried that a sooner increase in borrowing costs could hurt the recovery of the US economy, a record of the meeting on January 27-28th showed. Policy makers were also concerned that if they drop their “patient” stance it would tie them to a certain timetable, which might cause a market overreaction.

Officials supported the case of keeping borrowing costs low by citing muted US inflation, pressured by plunging oil prices, sluggish wage growth, the prolonged weakness in foreign markets and the crises in Greece and Ukraine.

Following the release, global equities gained some ground, while the dollar slid.

Gold traders will now wait for the congressional testimony of Fed Chair Janet Yellen next week to look for more clues on when officials will launch the hike.

“While an eventual rate hike is bearish for gold, the decision by the Fed to remain patient provided some relief to the bullion market,” said HSBC analyst James Steel, cited by Reuters.

The yellow metal has felt the pressure of an eventual increase in interest rates in June, despite political turmoil in Europe. Raising borrowing costs would hurt demand for non-interest-bearing assets, including gold.

Potentially curbing safe-haven demand, Greeces government submitted a request to its Eurozone creditors for a six-month extension of the availability of bailout funds to avoid running out of cash.

Dutch Finance Minister Jeroen Dijsselbloem confirmed that the Eurogroup received the request. The single currency blocs finance ministers will convene on Friday to discuss the proposal. Details of the request havent been made public but any agreement will likely differ from the current bailout conditions.

Europe’s finance ministers met recently on several occasions but failed to find common ground, which boosted speculations that Greece may be the first country to leave the Eurozone, spurring safe-heaven demand for the metal.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, dropped 0.3 tons on Wednesday to 767.96 tons. Changes in holdings typically move gold prices in the same direction.

Copper

Comex copper for delivery in March traded 0.36% lower at $2.6050 per pound at 10:37 GMT, having shifted between $2.6245 and $2.5900. The contract rose 1.28% to $2.6145 on Wednesday.

The industrial metal fell on Thursday, offsetting gains from the previous sessions short-covering, as oil prices tumbled and many Asian markets remained closed due to the Lunar New Year holiday.

Oil prices tumbled for a second day after private data showed that a gain in US inventories last week exceeded expectations by more than four times, rekindling fears of a global supply overhang. Cheaper oil implies lower prices for copper mining and processing, while also broadly curbing sentiment toward commodities.

The prospects of delaying an interest rate hike in the US provided some support for the industrial metal, coupled with a possible progress in the negotiations between Greece and its European creditors. Significant moves, however, remained unlikely amid subdued trading conditions.

The market has recently drawn support after BHP Billiton Ltd. reported that as much as 70 000 tons of refined copper output will be lost due to repairs at the largest processing mill at its Australian Olympic Dam mine.

This would remove a large fraction of an expected global surplus, which analysts had pegged prior to the announcement at 120 000 – 220 000 tons. The supply disruptions will probably cut global copper output growth to 5.1% in 2015, Australia & New Zealand Banking Group Ltd. said.

In economic news, Japan’s imports fell by an annualized 9.0% in January, compared to a projected 4.8% decline, but exports surged 17%, exceeding forecasts for an 11.9% gain.

The Japanese economy swung out of recession in the fourth quarter of 2014, expanding at the annualized rate of 2.2%, but growth fell short of expectations on disappointing household and corporate spending.

Data yesterday showed that building permits in the US declined by 0.7% in January, compared to predictions for a 0.8% jump, while housing starts plunged 2.0%. Producer prices fell for a third straight month, while industrial and manufacturing production expanded less than expected.

Market players eyed today’s initial jobless claims figures from the US and manufacturing activity in the Philadelphia region, while a slew of preliminary manufacturing and services PMIs are due on Friday.