Commodities trading outlook: gold, silver futures slide on US factory gauge, copper steady

Gold and silver futures were lower during midday trade in Europe today, after ISM posted a significantly better-than-expected factory gauge for the US, boosting the dollar and pressuring havens. Meanwhile, copper futures were steady after downbeat China figures on Monday.

Gold futures for December delivery on the Comex in New York traded at $1 267.5 per troy ounce, down 1.55%, at 14:37 GMT. Prices ranged from a ten-week low of $1 265.7 to $1 290.9 per troy ounce. The precious metal added ~0.5% last week.

Silver for September delivery stood for a 1.29% daily drop at $19.240 per troy ounce.

Gold’s big story has been the Fed easing monetary stimulus for the US economy recently. As the US central bank cuts back on the massive government spending and prepares to increase the benchmark interest rate, the US currency gains in value. The US Dollar Index reached a new 13-month high today, as investors bet that more positive US data will reinforce speculation that the Fed will raise the lending rate earlier than previously expected.

Since gold, like most other commodities, is denominated in dollars, a stronger greenback increases the cost of gold to other currencies, lowering its investment appeal.

ISM posted its US manufacturing PMI reading at 59.0 today, logging the highest figure in 40 months, and recording a significant acceleration in US factory activity. ISM will post its services PMI gauge tomorrow, services accounting for ~80% of US GDP, set for another quite positive reading. Expectations of upbeat employment data, due later this week, further strengthens dollar bulls.

Elsewhere, the Eurozone posted downbeat manufacturing readings today, though the Bloc-wide figure was still above 50, meaning an expansion in the sector. More economic data on the Eurozone is due this week, before a crucial European Central Bank (ECB) interest rate decision on Thursday. Speculation has been mounting that the ECB will take action to halt the downward spiral seen in the making for the Eurozone, though analysts expect the measures will fall short of lowering the central lending rate.

A possible quantitative easing program is on the table, however, pressuring the euro lower. The euro has a very strong opposite correlation with the dollar, meaning that a weaker euro directly supports the dollar, and hence, pressures gold.

Copper

Copper contracts for December, the most-traded contract in New York, stood at $3.1660 per pound, up 0.17%. The red metal dropped ~2% last week.

Two separate readings on Chinese factories were posted yesterday. Both the official government manufacturing PMI reading and HSBC’s figure were logged at above 50, meaning an expansion in the sector, though both were below expectations and standing for a significant slowdown in growth.

“Chinas PMI came in slightly below expectations but it wasnt the end of the world,” analyst James Glenn of National Australia Bank in Melbourne, said for Reuters.

China is the world’s leading copper consumer, accounting for more than 40% of total copper demand.

“If we see more stimulus from the ECB, which is looking more and more likely, thats going to be a boost to commodity markets … and its helping to offset some of the more negative economic signals at the minute,” Glenn added.