Copper and gold have muted response to Fed minutes

New York (Apr 6)  Copper and gold markets were little changed in the initial moments after the release of the March Federal Open Market Committee (FOMC) meeting minutes, despite competing viewpoints between the various Fed members. Gold for June delivery on the Comex division of the New York Mercantile Exchange was last down $5.80 or 0.5 percent to $1,223.80 per ounce. Trade has ranged from $1,217.20 to $1,233.80. Comex copper for May settlement gained 0.10 cents or 0.1 percent to $2.1390 per pound. Trade has ranged from $2.1305 to $2.1510. As markets have calmed after the global equities downturn at the beginning of the new calendar year, some committee members argued at the March 15-16 meeting that the economy was stabile enough to warrant another hike.

The hawkish members cited an improving labour market, increased wages and signs of inflationary signals, while also arguing that with rates being near-zero, if the economy did fallback into recession, there would be little the policy-board could do from an interest rate standpoint. However, several central bankers voiced concerns that labour market slack persisted and that raising rates too quickly “would signal a sense of urgency they did not think appropriate”. “With respect to the economic outlook and its implications for monetary policy, members continued to expect that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market indicators would continue to strengthen,” the March meeting minutes said. “However, they saw global economic and financial developments as continuing to pose risks.”

At the March meeting, Federal Reserve Chairwoman Janet Yellen and company said “global risks” remained, which reignited talks that a downturn in one of the major economic regions could threaten the burgeoning rebound in the US. The state of the world economy will remain at the forefront with next week’s International Monetary Fund (IMF) meeting approaching. The organisation is expected to once again lower the global growth forecast, while major economies such as Brazil, China and Russia have been particularly hard hit by the commodities downturn and are dealing with deepening recessions. Even mature regions are struggling – the central banks of Europe and Japan have moved rates into negative territory in a bid to spur inflation and instill confidence. “Gold thrives in periods of heightened uncertainty… There appears to be enough uncertainty to prop up gold and the financial markets are no longer focused on the possibility of a near-term Fed rate hike. This relieves gold of a major weight, at least for the moment,”

HSBC analyst James Steel said. Still, investors are becoming more bearish, with holdings in the gold-backed ETFs tracked by FastMarkets falling 0.46 tonnes overnight. Holdings are on pace to end lower for the second straight week after falling 4.22 tonnes last week, the fist reversal in 13 weeks. “The resurgence of risk aversion could bode well for gold due to its safe-haven characteristics,” Boris Mikanikrezai, metals analyst at FastMarkets, said. “Still, the speculative positioning is overstretched on the long side while ETF demand is pausing after three months of intense buying. Against this backdrop, upward pressure could be contained.” Turning to US equities, the Dow Jones industrial average and S&P were last up 0.3 percent and 0.6 percent respectively, while the dollar fell 0.3 percent to $1.1409 against the euro. As for other precious metals, Comex silver for May delivery declined 5.1 cents or 0.3 percent to $15.065 per ounce. Trade has ranged from $14.915 to $15.195. Platinum for July settlement declined $6.10 or 0.6 percent to 945.50 per ounce, while the most-actively traded palladium contract stood at $540.80 per ounce, down $2.85 or 0.5 percent.

Source: FastMarkets