Metals consolidating, but bargain hunting expected

LONDON (Sept 5)   The metals generally closed negatively on Wednesday with average losses of one percent on the base metals and 1.9 percent on the precious metals, with copper closing down 1.5 percent at $7,135.75, tin was the exception it closed up 3.2 percent at $21,835 as tighter export requirements in Indonesia have reduced exports. Gold was little changed at $1,390.65, while silver was down 2.8 percent at $23.40. The markets are jittery about the geopolitical situation in the Middle East and are nervous about what impact the tapering of quantitative easing is likely to have, in light of what impact the thought of tapering is already having on emerging market economies.

This morning the base metals are consolidating, they are all positive, but average gains are just 0.2 percent with copper at $7,135.50, but there does seem to have been good two way business as volume is high at 11,318 lots as of 07:25 BST. The precious metals are mixed with gold down 0.4 percent at $1,384.90 and silver off 0.6 percent at $23.27, while the PGMs are consolidating – see table attached for more details.

In Shanghai the metals are lower, the base metals are down an average of 0.7 percent with copper off 0.9 percent at Rmb 51,780, zinc is down 0.7 percent at Rmb 14,690, aluminium is down 0.6 percent at Rmb 14,195 and lead is off 0.5 percent at Rmb 14,390. Rebar is bucking the trend with a 0.3 percent gain to Rmb 3,574.

The precious metals are down more heavily with gold off 1.9 percent at Rmb 274.90 and silver is down 4.9 percent at Rmb 4,673.

Spot copper in Changjiang is off 0.9 percent to Rmb 52,050-52,350, which puts the backwardation with the futures at an equivalent of around 93/tonne, while the LME/Shanghai copper arb ratio is at 7.26, which means there are some arbitrage opportunities.

Equities – yesterday equities were positive with the Euro Stoxx 560 closing up 0.2 percent, but the Dow closed up 0.7 percent, but the tone is Asia has been mixed this morning with the Nikkei up just 0.1 percent, the Hang Seng is up 1.4 percent, the Kospi is up one percent and China’s CSI 300 is off 0.2 percent.

Currencies – one of the negative influences in the metals is the stronger dollar with the dollar index up around 82.30, while the euro is weaker at 1.3170, sterling is relatively firm at 1.5615, as is the aussie at 0.9150, while the yen is weak at 99.75 and the yuan is flat-lined at 6.1195.

The economic agenda is busy today, see table attached – the markets are likely to pay special attention to how well the various bond auctions are taken up in Europe, the ECB and UK’s Monetary Policy Committee’s interest rate statements, the US jobs data and the ISM non-manufacturing PMI.

Our near term, outlook for the base metals is one of consolidation with some room for bargain hunting. Prices have pulled back in recent weeks and are back in areas where we would expect support and some pricing to emerge, especially as the end of the summer lull is upon us. As such, we would expect buying to underpin prices before too long.

Our outlook for the precious metals is generally bullish, prices have suffered a pull back, but we see this in the context of a two steps up and one step down pattern and after the strong gains seen in August some consolidation/profit-taking is to be expected. Likewise, although PGM prices are under pressure we expect the lower levels will attract bargain hunting/restocking.