Commodities trading outlook: gold, silver and copper futures

Gold and silver futures were only slightly impacted by the major decision by the ECB to lower the central lending rate to a historic low of 0.05%. Meanwhile, copper futures gained as the ECB was seen supporting the real EU economy.

Gold futures for December delivery on the Comex in New York traded at $1 270.6 per troy ounce, up 0.02%, at 13:04 GMT. Prices ranged from $1 267.6 to $1 276.2 per troy ounce. The precious metal added 0.4% yesterday, though not before reaching a ten-week low of $1 261.9.

Silver for September delivery stood for a 0.34% daily increase at $19.255 per troy ounce.

The European Central Bank decided to lower the benchmark lending rate to the lowest level ever of 0.05%, amid pressure for action in light of downbeat economic data from the Eurozone. Although there was pressure for some form of monetary stimulus, the cut was largely unexpected and drove the euro to a new 14-month low, while the US dollar saw a massive surge to reach a new 14-month peak.

The US dollar is a major influence on gold prices, since gold, like most other commodities, is denominated in dollars. Hence, a stronger greenback increases the cost of gold to foreign currencies, lowering the precious metal’s investment appeal.

Also, the ECB deposit rate was pushed further into the negative at -0.2%, also the lowest on record. A negative deposit rate means the ECB is charging commercial banks money to keep their money in vault, effectively promoting more lending.

ADPs flash payrolls figure pared some of the positive sentiment for the dollar, showing the US economy had added 204 000 new jobs in August, some 20 000 below expectations. The official government report is tomorrow, with US unemployment set for a six-year low at 6.1%.

“Bullion prices are likely to stay under pressure, especially if the US dollar gains,” James Steel, an analyst at HSBC Securities, wrote in a note cited by Bloomberg. “Although geopolitical events do not normally drive prices longer term, they may have greater influence on gold in the near term.”

Ukraine

Events in Ukraine were a strong secondary driver for gold pricing in the past year, but the confrontation might just be heading for a peaceful resolution. Ukrainian President Petro Poroshenko and his Russian counterpart Vladimir Putin have reached an agreement over a peace process in the embattled eastern regions of Ukraine. Mr Putin said a conclusive deal might be struck as early as tomorrow.

The peace initiative is foreshadowed by a NATO summit in Wales starting today, which should see the western powers take a firm stance against Russian aggression towards Ukraine. Kiev just yesterday approved a law to apply for NATO membership.

Also, the EU should have a more clear stance on further economic sanctions against Russia by the end of the week, with France deciding to halt the delivery of two warships to Russia, in light of the latest accusations against the Kremlin.

Investors continued betting on peace in Ukraine, as signaled by the drop in assets at the SPDR Gold Trust. Gold holdings dropped ~2.5 tons on Wednesday, reaching the lowest level in more than two months, losing in sync with gold prices.

Copper

Copper contracts for December, the most-traded contract in New York, stood at $3.1640 per pound, up 1.18%. The red metal dropped ~0.9% on Wednesday.

The ECB interest rate decision supported base metals, as it set a positive outlook for the EU and the broader economic recovery.

Previously, China, the world’s leading consumer of copper with a 40% share of total demand, offered bearish news for the red metal yesterday, after it was made clear that authorities were investigating a corruption lead with the regional head of China’s state-owned State Grid Corp., which builds and manages the country’s power grid.

The news weighed on copper, as about half of China’s copper, or 20% of the world’s copper, is put into the country’s power grid, and a possible crackdown on the leadership could hurt operations, and copper demand.

“The key for copper will be the ending of the probe into the placing of tenders by the Grid Corp., which has held up their spending plans,” David Wilson, an analyst at Citigroup Inc. in London, said for Bloomberg. “The big tenders which were due in the second/third quarter haven’t yet materialized.”

Meanwhile, a reported increase of LME-monitored copper further pressured the metal, as the global market is projected to see a significant surplus of the red metal through 2014 and even more so in 2015.

“Copper took a hit when LME stocks (data) came out,” BNP Paribas analyst Stephen Briggs said for Reuters. “If the surplus is going to become more visible through exchange stocks, that would be meaningful.”