Commodities trading outlook: gold up on growth concerns, copper follows oil higher

Gold edged up to trade above $1 280 an ounce on Tuesday as global growth concerns boosted demand for the metal, but investors remained cautious as they assessed the possibility of a US rate hike. Silver, platinum and palladium rose as well. Copper gained as a rebound in oil prices led to a broader advance in commodities.

Comex gold for delivery in April climbed 0.41% to $1 282.1 per troy ounce by 10:30 GMT, shifting in a daily range of $1 286.5-$1 272.0. The precious metal fell 0.18% to $1 276.9 on Monday.

Projections of slowing global growth have prompted the European Central Bank to introduce a stimulus program in order to fight deflation in the region and jump-start economic development. However, the move caused volatility in European markets, additionally boosted by the recent Greece elections, pushing investors to seek the safety of the metal.

Despite rising worries about a sooner US interest rate increase by the Federal Reserve, the precious metal has jumped 8% so far this year, after it scored its biggest monthly increase in thee years in January.

Fed officials boosted their outlook for US economic growth to “solid” at FOMCs last meeting, but recent downbeat data spurred some doubts, raising speculations that the Fed will take its time in raising borrowing costs.

The US dollar index for settlement in March was up 0.01% at 94.745 at 10:28 GMT, holding in a daily range of 94.925-94.685. The US currency gauge fell 0.28% on Monday to 94.734. 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.

“I think the sentiment on gold has changed from a very bearish tone last year which was due to expectations of higher U.S. interest rates,” said Yuichi Ikemizu, branch manager at Standard Bank in Tokyo, cited by CNBC. “We have seen some good demand from Asia around $1,250 and the market is quite long at the moment.”

Mr. Ikemizu also said that most traders remain divided and recommended caution after the US release of employment data this Friday as he expects sharp liquidation of long positions, if the report shows strong figures.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, edged up 8.36 tons on Monday to 766.73 tons, their highest since October. Changes in holdings typically move gold prices in the same direction.

Copper

Copper advanced as oil prices jumped to the highest in almost a month, raising the costs of metals mining and processing and driving general sentiment toward commodities higher. Hopes for additional stimulus measures in China also provided support.

Comex copper for delivery in March rose by 3.21% to $2.5700 per pound by 10:30 GMT, having shifted between $2.5795 and $2.4960 during the day. The contract fell 0.18% to $2.4900 on Monday after shedding 11.9% during the previous four weeks.

West Texas Intermediate crude rebounded to above $50 per barrel, while Brent exceeded $55, after data on Friday showed that US drillers idled a record number of oil rigs last week, bringing their total count to the lowest in three years.

Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd, said for Bloomberg: “Certainly the rebound in the energy markets has helped improve sentiment in general in the commodity markets. That’s certainly feeding through now into base metals.”

The industrial metal has also been drawing support by broad expectations for the Peoples Bank of China to introduce additional monetary stimulus measures to jump-start the cooling Chinese economy. GDP growth in the fourth quarter of 2014 came a bit above expectations, but full-year growth undershot the governments official target of 7.5% and fell to the lowest since 1990.

Meanwhile, China’s manufacturing sector contracted last month for the first time since September 2012, according to government data. The corresponding manufacturing PMI came in at 49.8 from 50.1 in December, defying analysts’ projections for a jump to 50.2.

A separate private gauge showed that factory activity in China declined for a second straight month in January. The HSBC China Manufacturing PMI rose to 49.7 from 49.6 in December, missing a preliminary reading of 49.8. China is the world’s biggest copper consumer and accounts for around 40% of global demand.

Also adding to worries on the demand side, the Institute for Supply Management reported that manufacturing activity in the US grew at the slowest pace in 11 months in January, with the corresponding ISM Manufacturing PMI falling to 53.5 from 55.5 in December. Analysts had projected a drop to 54.5.

Meanwhile, US personal spending slid by 0.3% in December on a monthly basis, even as personal income rose 0.3%, matching a 0.3% decline in April 2013 which was the largest since September 2009.

Analysts now eye the US Labor Department’s all-important jobs report for January, due on Friday, to assess the US economy’s recovery progress. US employers are expected to have added 234 000 jobs last month, while the unemployment rate likely remained at a multi-year low of 5.6%