BASE AND PRECIOUS METALS MORNING VIEW - Metals consolidate, but seem well place to challenge overhead resistance

LONDON  (Aug 5)  A slightly soft employment report on Friday triggered some buying interest across the metals that left both base and precious up with average gains of around 0.7 percent, with zinc and tin leading the base, while silver led the precious metals, it closed up 1.6 percent at $19.85. Even with US unemployment at 7.4 percent it is still a considerable distance from the 6.5 percent level the Fed is looking for, so it may well be that QE tapering is slow to get going and that might well provide the markets with some room on the upside, which in turn may prompt further short-covering.

This morning the base metals are down an average of 0.4 percent with tin off 0.9 percent at $20,906, aluminium down 0.8 percent at $1,800 while copper is off 0.4 percent at $6,976. Precious metals are up an average of 0.2 percent with gold up 0.3 percent at $1,316.40. Volume on the LME has been average with 6,944 lots traded.

Over the weekend China’s non-manufacturing PMI came in at 54.1 up slightly from 53.9, which suggests some stabilisation.

In Shanghai, the base metals are up 0.2 percent with zinc up the most with a 0.4 percent gain to Rmb 14,585, while copper is up 0.2 percent at Rmb 50,320, aluminium is unchanged at Rmb 14,245 and lead is up 0.3 percent at Rmb 13,985. Gold is up 0.5 percent at Rmb 262.65 and rebar is up 0.4 percent at Rmb 3605.

Spot copper in Changjiang is up 0.2 percent, which puts the backwardation with the futures at around an equivalent of $140, while the LME/Shanghai copper arb ratio is 7.21, which means the arb is closed.

Equities on Friday the Euro Stoxx 50 closed up 0.1 percent and the Dow was up 0.2 percent, but the tone in Asia this morning mixed with the Nikkei down 1.4 percent, the Hang Seng is up 0.2 percent, the Kospi is down 0.4 percent and China’s CSI is up 0.7 percent.

Currencies – the dollar has slipped with the dollar index at 81.90 after a recent high of 82.53, while the euro is firm at 1.3270, as are sterling at 1.5288, the yen at 98.46 and the yuan is at 6.1248, while the aussie is weak at 0.8892.

Data out today focuses on non-manufacturing PMI in Europe, the UK and the US, in addition there is data on EU Sentix investor confidence and retail sales – see table attached.

Metal prices tried higher last week and dips were generally supported, but there seems a lack of interest in chasing prices higher so overhead resistance seems formidable. Lead and tin seem to be the exceptions with both metals breaking out above recent resistance.  Copper is well placed to challenge resistance and if it can move higher then that might well underpin stronger sentiment across the complex.

Gold and silver were under pressure last week until after the employment report, which saw them tack higher, but like the base metals there seems considerable overhead resistance that is likely to keep a lid on the upside. The PGMs continued to consolidate – they are also well placed to push higher, but that might be dependent on labour developments in the mining and power industries.  

Overall we would not be surprised to see prices try higher and that might trigger some upside flurries of short-covering, but we would expect higher prices to continue to attract scale-up selling.