Silver back at two-year high as gold marks first gain in five sessions

New York (July 13)  Silver futures returned to a nearly two-year settlement high on Wednesday, as the U.S. stock market paused their recent rally, providing a lift to gold prices, which marked their first climb in five sessions.

The recent rally in U.S. equities SPX, +0.01% DJIA, +0.13%  had tarnished the appeal of precious metals, often used as a hedge against higher-risk investments.

September silver SIU6, +1.38% which has been the highflier relative to gold in recent weeks, added 24.2 cents, or 1.2%, to settle at $20.413 an ounce. Silver, which has been getting an additional boost from its use as an industrial commodity, saw its highest settlement since late July 2014, according to FactSet.

Meanwhile, August gold GCQ6, +0.66%  gained $8.30, or 0.6%, to finish at $1,343.60 an ounce following a four-session decline.

In electronic trading, gold futures topped $1,344 after the latest Federal Reserve beige book survey released Wednesday afternoon raised questions about the broader health of the U.S. economy in the second half of the year. Weak economic data can dull expectations for an interest-rate increase, which is supportive for gold prices. Higher rates tend to reduce demand for precious metals that don’t offer a yield.

“We will be watching to see how gold performs against a backdrop of steadily improving equity markets,” said Edward Meir, independent commodity consultant at INTL FCStone, in a note.

“We still think that the preponderance to ease further, now being pursued by a host of central banks, will likely provide an element of support to gold and prevent a noticeable deterioration in the hard-won gains the precious metal has chalked up so far th is year,” he said.

On Wednesday, the U.S. Dollar Index DXY, -0.22%  fell 0.4%, resuming a typical relationship in which the buck and precious metals move inversely. Major U.S. stock indexes were mixed after gold prices settled. See Market Snapshot.

Taiwan’s President Tsai Ing-wen says an international court's ruling over the South China Sea dispute has damaged the island's rights to the Spratly Islands. Photo: EPA

Analysts at Commerzbank pointed out that the interest-rate headwind for precious metals was “no longer offset by ETF inflows yesterday.”

In fact, the gold ETFs tracked by Bloomberg recorded outflows of 10.6 tons Tuesday—their sharpest daily outflow this year. The world’s largest gold ETF, the SPDR Gold Trust, reported an outflow of 16 tons.

“It is still too early to draw any conclusions about trends from this, however,” Commerzbank said. “There are still numerous reasons for investors to choose gold as a safe haven. And another one has emerged since yesterday: the Permanent Court of Arbitration in The Hague has dismissed China’s claims in the South China Sea as unlawful. This verdict could spark renewed political tensions between China and its Asian neighbors, and between China and the U.S.”

Read: China’s claim to most of South China Sea has no legal basis, court says

In Wednesday trading, the SPDR Gold Trust ETF GLD, +0.92%   was up 0.9%, while the iShares Silver Trust SLV, +1.57%  gained 1.5%.

Elsewhere in metals, October platinum PLV6, +0.34%  added $2.30, or 0.2%, to $1,100.20 an ounce, while September palladium PAU6, +2.66%  gained $15.25, or 2.4%, to $644.20 an ounce.

September copper HGU6, +1.17%  added 2.7 cents, or 1.2%, to end at $2.24 a pound.

Copper is often sensitive to China developments, said Colin Cieszynski, chief market strategist at CMC Markets, but copper traders ignored June data showing a decline from a year ago in Chinese imports in yuan terms. Read the Asia Markets column.

“This indicates traders remain positive about the prospects for the broader global economy‎ and the potential for more stimulus in Japan (amid talk of fiscal programs and denial of helicopter money) and the U.K. (ahead of Thursday’s Bank of England meeting),” said Cieszynski.

Source: MarketWatch