Commodities trading outlook: gold, silver and copper futures

Gold dropped below the key support of $1 200 during midday trade in Europe today, though it soon recovered, after the US economy was reported adding much more payrolls in September than expected. Meanwhile, copper futures were steadily orbiting the $3 level.

Gold futures for December delivery on the Comex in New York traded at $1 199.5 per troy ounce by 12:40 GMT, down 1.28%. Prices ranged from a nine-month low at $1 1199.1 to $1 215.7 per troy ounce. The contract was little changed for the week through Thursday.

Silver for December delivery stood for 1.10% daily drop at $16.860, after logging a four-year low at $16.640 earlier today. The contract is headed for a ~4% weekly loss.

“Platinum group metals continue to be subject to investor liquidation, which is more than offsetting physical interest,” HSBC analyst James Steel said, cited by Reuters. “Bargain-hunting may emerge if the platinum-gold spread contracts further.”

End-of-quarter technical dynamics and a strong dollar weighed heavily on the whole precious metals complex Tuesday. Gold lost about 9% last quarter, platinum closed for a 12% loss, palladium down 8%, while silver shed 19%. Since Tuesday, however, platinum continued losing, while other metals were relatively steady, as crucial US data was in focus.

The key figure on US nonfarm payrolls for September was released today, revealing the US economy had added 248 000 new jobs, compared to expectations of a 215 000 reading, boosting the US dollar to a new four-year peak. Meanwhile, the unemployment rate was logged at a six-year trough at 5.9%, also beating expectations.

The Fed has often cited labor market weaknesses as the main reasons for keeping accommodation in place for a longer period. Should the figures today beat expectations, it would strengthen speculation that the Fed will be more prone to hawkish moves, which would boost the dollar further and pressure all dollar-denominated commodities, such as gold.

Further strengthening the greenback, downbeat Eurozone readings pressured the euro to a two-year low this week. Investors had focus on the European Central Bank (ECB) meeting yesterday, for details as to the bank’s ambitious €3tn stimulus program. ECB President Mario Draghi revealed that the program will last at least two years and will start with covered bonds in second half of October, but the more important information about the targets was kept from the public.

The ECB announced the measure last month, which would add to a central lending rate cut to a historic 0.05% low in efforts to revive growth in the Eurozone. The latest batch of economic data also proved bearish, with manufacturing in the Bloc dropping to a 14-month low, while disappointing unemployment and CPI readings added to negative sentiment earlier this week. August retail sales were logged at a 1.2% monthly growth, beating expectations of a 0.1% growth, while the services PMI figure fell short of forecasts at 52.4.

Holdings at the SPDR Gold Trust, the largest exchange-traded gold-backed fund, dropped a further 1.2 tons to 767.47 yesterday, the lowest since December 2008, as investor interest in the yellow metal drops.

Copper

Copper contracts for December, the most-traded contract in New York, stood at $3.0050 per pound, up 0.22% for the day, also logging the lowest price in five months at $2.9935.

“The mood in the copper market is really not good,” Edward Meir, an analyst at INTL FCStone, said for The Wall Street Journal. “The charts are poor, and investor sentiment is poor as well.”

The strongest dollar in four years was the main oppressor to copper recently. Downbeat manufacturing PMI figures from the Eurozone, which barely marked an expansion, and worse than expected, though still standing for a massive growth, US figures were also seen as bearish. A worse-than-expected monthly drop at US factory orders added to bearish sentiment Thursday.

Earlier, key data on China was posted, with both HSBC and the Chinese government seeing growth in China’s factory sector last month. However, HSBC saw disappointingly minimal growth, barely into the positive, which pressured the red metal sharply to the downside yesterday. The factory sector activities gauge is a leading indicator for copper demand, while China itself accounts for 40% of global copper demand.