Commodities trading outlook: gold, silver steady, copper higher ahead of key US data

Gold and silver futures were little changed during midday trade in Europe today, as investors look to US new home sales to further reinforce speculation that the Fed will raise rates. Meanwhile, copper futures were higher, as expectations of increasing home sales drive demand outlooks higher.

Gold futures for December delivery on the Comex in New York traded at $1 280.7 per troy ounce, up 0.04%, at 12:20 GMT. Prices ranged from $1 276.1 to $1 280.8 per troy ounce. The precious metal dropped ~2% last week.

Silver for September delivery stood for a 0.12% daily gain at $19.528 per troy ounce. Silver dropped ~0.4% last week.

The Jackson Hole meeting of central bankers gave US Fed Chair Janet Yellen the chance to confirm a possibility of an earlier than previously anticipated interest rate hike, should the US economy show continuing signs of strong recovery.

“The market is focused on tightening U.S. monetary policy, which is pressuring gold,” Sun Yonggang, a macroeconomic strategist at Everbright Futures Co. in Shanghai, said for Bloomberg.

Yellen’s remarks gave a further boost to dollar bulls, lifting the US currency to a new 13-month peak, while ECB President Mario Draghi signaled QE might be coming to the Eurozone, further lowering the euro and supporting the greenback.

The value of the dollar plays a significant role in gold pricing, as a stronger US currency lifts the relative price of any dollar-denominated trade good, such as gold, to other currencies, reducing their appeal.

Investors now turn to economic data now, to gauge the direction of the dollar, and therefore gold. The German Ifo Business Climate Index posted a below-par German business confidence, the lowest level in 13 months, while later we’ll see US new home sales figures, which are said to have made significant gains last month.

Positive economic data in the US, and downbeat EU figures, offer more support to dollar bulls.

Meanwhile, ongoing conflicts in Ukraine and the Middle East clocked some safe haven bids, though the risks were overshadowed by bearish economic data.

Ukraine, Middle East

Ukraine announced a massive surge in military spending last week, as the offensive against the pro-Russian separatists was being pressed forward. The announcement came as Germany called for a ceasefire as soon as possible and a future federation to guarantee Russian speakers’ rights. Russian President Vladimir Putin will meet with his Ukrainian counterpart as the drive towards peace seems to enter home stretch, easing risk premiums and weighing on gold.

Meanwhile, however, Ukrainian sources said another column of Russian armored vehicles entered Ukraine early on Monday. Russian Foreign Minister Sergei Lavrov said there is a lot of “misinformation” going about from Kiev recently. He also said Moscow plans to send another humanitarian convoy to Ukraine. The first one caused an international outrage, after it was sent in by Moscow, despite protests from Kiev and the international community.

Elsewhere, the ongoing conflicts in Iraq and Libya failed to disrupt oil exports, while Israel’s Gaza campaign is still continuing.

Investors buy gold in time of economic or political troubles, lifting its price, as they believe it would hold its value despite risks, constituting the so-called “safe haven” asset.

Assets at the SPDR Gold Trust, the largest exchange-traded gold fund, were unchanged on Friday after adding ~3 tons over the previous four sessions, reaching the highest level in a month. Increasing volumes at the fund signal higher investor interest in gold.

Copper

Copper contracts for September stood at $3.2185 per pound, up 0.44%. The red metal dropped ~2.7% last week.

Investors await the key figure on US new home sales, which is a major driver for copper prices. An average home has about 300-500 pounds of copper in wiring and plumbing.

The strengthening dollar also weighs down on the dollar-denominated copper, though an overall bright economic picture eases the industrial metal, as demand for base metals generally picks up with the pace of the economy.

Supply growth through the end of the year, however, is expected to grow into a sizable market surplus, projecting a bearish outlook for copper.

Currently, “supply disruptions and better-than-expected demand are keeping the supply and demand balance tight. In our view, consensus is too bearish if current market conditions are sustained,” Morgan Stanley said in a research note on Monday.