Commodities trading outlook: gold at four-year low on strong dollar, copper set for monthly rise

Gold fell to the lowest level in more than four years as the US dollar rallied, freshly supported by a weaker yen after Bank of Japans surprising decision to expand its stimulus program. Improved risk appetite sent equities soaring, while also supporting copper which was on track to post its first monthly gain in three. Silver slid near the lowest in more than 4-1/2 years.

Comex gold for delivery in December traded at $1 163.0 per troy ounce at 13:30 GMT, down 2.97% on the day, having earlier plunged to $1 160.5, the lowest since July 2010. The precious metal dropped 2.15% on Thursday to $1 198.6, the lowest settlement since October 3rd, and is down 5.7% this week.

Meanwhile, silver for settlement in the same month fell 3.17% to $15.900, having earlier declined to $15.635 an ounce, the lowest since February 2010. The contract plunged 4.9% on Thursday to $16.420 and is down 7.6% so far this week. The metal is set for a fourth monthly decline.

Gold and silver were heavily impacted as the US dollar rallied to the highest in more than four years. The greenback regained ground lost since the beginning of October after the Federal Reserve ended its Quantitative Easing program and said it could raise interest rates faster than expected, given that the labor market improves at an accelerated pace and prices retain stability.

Policy makers said the US labor market has strengthened enough to digest the end of Fed’s bond purchases, citing solid jobs growth and a lower unemployment rate since their last meeting in September. FOMC members said that interest rates could be hiked sooner than otherwise, if Fed’s goals of full employment and stable prices are reached faster than expected, but stated that the opposite scenario can occur as well.

The dollar was also lifted by the yen falling to the lowest in seven years against it after Bank of Japan unexpectedly boosted unprecedented stimulus. The central bank said it is targeting an 80 trillion yen ($726 billion) expansion in the monetary base, up from 60 to 70 trillion yen before.

The US dollar index, which measures the greenback’s performance against a basket of six major trading peers, rose to the highest in more than four years. The December contract gained 0.97% to 87.065 by 13:30 GMT, having earlier risen to 87.220, the highest since June 2010. The US currency gauge rose 0.23% on Thursday to 86.232.

US data

The greenback was already drawing support after the Commerce Department’s Bureau of Economic Analysis reported yesterday that the US economy grew by an annualized 3.5% in the third quarter, exceeding analysts projections for a 3% growth. The US economy posted its best six-month performance since the second half of 2003 after a 4.6% expansion in the second quarter.

A separate report showed that the four-week average number of Americans who filed for initial unemployment benefits in the week through October 25th slid to 281 000 from the preceding week’s upward-revised 281 250, hitting the lowest level since may 2000.

Consumer spending in the US unexpectedly falling in September was a soft spot in this weeks data set, although the effect was muted due to the strong GDP numbers. Expenditures slid 0.2% last month after a 0.5% gain in August, defying analysts projections for a 0.1% increase. Personal income rose 0.2% from a month earlier trailing expectations for a 0.3% jump.

Manufacturing activity in the Chicago region accelerated in October, with the respective PMI registering at 66.2, the highest since April 2011, sharply exceeding projections for a slowdown to 60.0 from the previous months 60.5.

SPDR assets at multi-year low

Holdings in the SPDR Gold Trust, the world’s largest bullion-backed ETP, fell for a third day on Thursday to 741.20, the lowest since October 2008.

The metal also failed to draw support from Asian physical markets, which typically underpin it when prices drop below $1 200 per ounce. Premiums on the Shanghai Gold Exchange, the main platform for physical trades in the country, declined on Friday to less than $1 an ounce after ranging between $1 and $2 yesterday.

Despite a previously reported pickup in Chinese imports in September ahead of the National Day Holiday, the China Gold Association said on Friday that the Asian country’s consumption fell by an annualized 21.4% in the first nine months to 754.8 tons.

Copper

Copper fell on Friday, pressured by a strong dollar, but was poised to post its first monthly rise in three as Bank of Japans decision to expand its monetary stimulus program boosted risk appetite, sending equities surging.

Comex copper for delivery in December was down 0.31% by 13:30 GMT at $3.0530 per pound, having shifted in a daily range of $3.0930-$3.0480. The industrial metal slid 1.35% on Thursday to $3.0625, pressured by a stronger dollar, but nevertheless headed for an advance in October, up 0.4% on weekly and 1.4% on monthly basis.

Bank of Japans move to combat deflation fears, stemming from falling oil prices, by surprisingly easing further its monetary policy heightened investors risk appetite, fueling a sharp rally in Asian and European equities.

Gayle Berry, a metals strategist at Jefferies Bache, said for CNBC: “We saw some significant moves in Asian risk assets and that has lent support to risk appetite and to base metals.”

The industrial metal also drew support on the demand side by upbeat economic data from the US. However, gains were capped as a walkout that was supposed to begin next week at Freeport-McMoRan Incs Grasberg copper mine in Indonesia was canceled after the workers union struck an agreement with management.

The red metal had also been drawing support by news from last week that workers at the biggest copper mine in Peru, Antamina, will walk out indefinitely as of November 10th.

Investors hoped the strike action would curb supply, which is expected to widely outstrip demand next year. A survey by Reuters hаd shown a moderate surplus this year, which will bubble in 2015, while an industry group had predicted a deficit this year, before jumping to a 390 000-ton surplus in 2015.