Commodities trading outlook: gold, silver and copper futures edge higher

Gold and silver futures climbed during midday trade in Europe today, bouncing off multi-month lows. Meanwhile, copper futures added on the back of better-than-expected China factory data.

Gold futures for December delivery on the Comex in New York traded at $1 232.5 per troy ounce by 12:24 GMT, up 1.20%. Prices ranged from $1 214.7 to $1 237.0 per troy ounce. The contract added 0.1% on Monday, though it also reached a nine-month low at $1 208.8.

Silver for December delivery stood for a 0.40% daily gain at $17.845 per troy ounce. The contract logged a 4.1/2-year low at $17.325 yesterday.

“We do not expect gains in gold to last for long,” Abhishek Chinchalkar, an analyst at Mumbai-based AnandRathi Commodities Ltd., said in a report cited by Bloomberg “With broader conditions in the U.S. continuing to improve, we expect the dollar to maintain a firm tone.”

The US reported somewhat disappointing housing data on Monday. Existing home sales logged a 1.8% drop in the annualized rate in August to 5.05 million. Home sales are a key metric of the retail sector, which is the biggest single market in the US, accounting for ~13% of US GDP.

More key US gauges will be reported this week, with durable goods orders set for a rebound after last month’s all time-high increase. Orders soared 22.6% on a monthly basis in July on the back of massive orders for Chicago-based airplane-manufacturer Boeing. Now orders are looking at a ~18% decrease on a monthly basis, still losing significantly less than the jump last month.

GDP figures on Friday are projected to confirm a bullish story for the dollar and US stocks, with the preliminary reading on quarterly growth for Q214 set to log at 4.6%, beating the earlier flash figure of 4.2%.

Betting on an improving recovery in the US, the Fed announced a steeper-than-earlier rate rise in 2015 last week, heavily supporting the US dollar and weighing on dollar-denominated commodities, such as gold.

The Federal Open Market Committee (FOMC) September meeting produced another $10bn cut in monthly government spending on quantitative easing (QE), keeping on track to close the program at its next meeting. Meanwhile the central lending rate was also kept at 0.25%. However, the targeted rate by the end of 2015 was increased from 1.125% to 1.375%, boosting the greenback to a new four-year peak.

“The strength of the dollar continues to put pressure on all precious metals, with gold looking likely to make a play for $1 200 in the coming sessions,” MKS Group said in a note cited by Reuters.

Reflecting on the diminishing appeal of gold, assets at the SPDR Gold Trust, the largest exchange-traded gold-backed fund, dropped 774.65 on Monday, the lowest level since December 2008.

Copper

Copper contracts for December, the most-traded contract in New York, stood at $3.0405 per pound, up 0.07% for the day. The red metal dropped 1.7% on Monday.

The red metal was supported by a better-than-expected reading on Chinese factories by HSBC and Markit. The companies put their manufacturing PMI at 50.5, signaling an expansion in the sector, which accounts for a significant chunk of Chinese copper consumption.

China itself accounts for 40% of global copper demand.

“It is good that the Chinese economy isnt collapsing but a weaker PMI number would have raised the likelihood of further stimulus from China, which would have given a boost to copper,” Caroline Bain, senior commodities economist at Capital Economics, said for Reuters. “The property and construction sectors in China are still not showing any signs of recovery. That, coupled with signs that copper mine supplies are ramping up, have led us to expect prices to fall further by the end of the year.”

A Reuters poll suggested a 226 000 ton surplus copper by end of 2014, and 285 000 tons next year.

Previously, downbeat US housing data pressured the red metal to a multi-month low on Monday. An average home has some 300-500 pounds of copper, making the real estate sector one of the top copper markets, and housing data a leading gauge for copper demand.

Now investors eye the key new home sales figures from the US on Wednesday. Analysts expect a bumper reading for a 4.2% growth of the annualized rate of new home sales.