Commodities trading outlook: gold, silver and copper futures

Gold and silver futures were down during afternoon trade in Europe today, as the US posted key data on consumer inflation and housing. US policy makers will meet tomorrow, to decide on key policies and evaluate the direction of the US economy. Meanwhile, copper futures were relatively steady.

Gold futures for delivery in August traded for $1 268.4 per troy ounce at 14:30 GMT on the COMEX in New York today, down 0.54%. Daily high and low stood at $1 273.5 and $1 258.0 per troy ounce, respectively. Yesterday the contract added 0.09%, reaching a three-week high at $1 285.1 per ounce, after a 1.5% weekly gain was logged on Friday.

Meanwhile, silver contracts for July stood at $19.675 per troy ounce, for a drop of 0.20%. Daily high and low were at $19.695 and $19.435 per troy ounce, respectively. Yesterday the contract gained 0.35%, for a monthly peak of $19.875 per troy ounce, after a further 3% increase last week.

US economy

The US posted the key reading on CPI today. The figure was recorded at 2.1% annual growth and 0.4% month-on-month, while core CPI, which exclude food and energy, added 0.3% on a monthly basis and 2.0% year-on-year. All standings beat expectations and set a positive tone ahead of the Feds meeting tomorrow. CPI is a leading indicator for consumer spending, which generates about 80% of US GDP.

The reading on the annual CPI is a main indicator used by the Federal Reserve to gauge the direction of the economy, and therefore make adjustments to monetary policy. As previously indicated, the CPI target of the Fed is 2.0% on a yearly basis, and it acts towards it.

The Federal Open Market Committee (FOMC), which makes the decisions on policies, will meet tomorrow. On the agenda are the key decisions on interest rates and on monthly assets purchases. Experts forecast another $10bn trim to purchases, while the main interest rate is expected to remain unchanged at 0.25%.

FOMC’s decisions have a significant impact on financial markets, as rates dictate short-term dollar valuation trends. Also, the US stimulus program, which buys assets worth tens of billions of dollars each month, has been a sizable support to the economy, and a cutback would mean less “easy” business. However, the cutback would be implemented only if the economy has been recovering well, and there are indications that it has been, given a 2.0% annual CPI for two months in a row.

The Federal Open Market Committee’s “June meeting will be in focus this week while a U.S. dollar rebound could weigh on bullion prices, provided Iraqi headlines subside,” Andrey Kryuchenkov, analyst at VTB Capital in London, said in an e-mailed note today, cited by Bloomberg. “Bullion’s long-term outlook remains unaltered, despite the safe-haven trading last week.”

US housing data was also released today. The annualized rate of housing starts dropped 6.5% on a monthly basis in May and stand at 1.001 million, while building permits annualized rate declined by 6.4% on a monthly basis to 0.991 million. The real estate sector accounts for about 13% of US GDP.

Copper

Copper futures for settlement in July added 0.21% to trade at $3.0565 per pound at 14:32 GMT today on the COMEX in New York. Prices shifted in a daily range between $3.0665 and $3.0415 per pound. The contract added 0.68% yesterday, after dropping about 0.8% last week, with a recorded five-week low at $3.0085 per pound.

China, which accounts for about 40% of total copper consumption, expanded the reserves ratio cut to include more banks yesterday, as part of the program, aimed at revitalizing economic growth, which is set to expand at the slowest rate since 1990, according to a Bloomberg survey.

Previously, Chinese industrial production for May was logged at 8.8% annual growth last week, after 8.7% in April. The industrial sector accounts for nearly half of Chinese GDP and the bulk of copper demand.