Commodities trading outlook: gold holds around $1 240, copper falls on demand worries

Gold traded lower on the day but held ground near the highest in five weeks as worries of a global economic slowdown stoked safe-haven demand. A firm dollar kept gains limited. Copper fell to the lowest in almost seven months following disappointing inflation numbers from China, the worlds top consumer.

Comex gold for settlement in December traded 0.55% lower at $1 237.9 per troy ounce at 13:26 GMT. Prices held in a daily range between $1 245.6, close to yesterday’s five-week high of $1 250.3 per ounce, and day’s low of $1 235.2. The contract rose by 0.85% to $1 244.8 on Wednesday, its third straight daily advance.

Golds upward momentum was halted by a firmer dollar, which partially recovered from yesterdays sharp fall after data unexpectedly showed that initial jobless claims fell to the lowest in more than 14 years, while industrial production rebounded in September.

According to the Labor Department, the number of Americans who filed for initial unemployment benefits in the seven days through October 11th slid by 23 000 to 264 000, the least since April 2000. The four-week average of claims, which irons out weekly volatility, dropped by 4 200 to 283 500, the lowest since June 2000.

The upbeat employment data helped the US dollar regain some of its lost positions, limiting golds upward movement. The US dollar index for settlement in December rose by 0.02% to 85.255 by 13:26 GMT, having shifted in a daily range of 85.530-84.865. The contract slid to 84.525 yesterday, the lowest since mid-September, and settled the day 0.8% lower at 85.241.

The US dollar index fell sharply on Wednesday after data by the Department of Commerce showed that retail sales plunged 0.3% last month after adding 0.6% in August. This was the poorest performance since January.

A separate report by the Labor Department showed that producer inflation contracted by 0.1% on a monthly basis in September after remaining flat a month earlier, defying analysts projections for a 0.1% jump. Year-on-year, the Producer Price Index marked a 1.6% rise, trailing projections and the preceding month’s 1.8% gain. Core PPI also underperformed analysts’ anticipations.

Sluggish data from Europe and China, coupled with Germany trimming its growth forecasts for 2014 and 2015 also refueled concerns over global economic growth, prompting increased safe-haven bids.

Federal Reserve Vice Chairman Stanley Fischer said on October 11th that weaker-than-expected global growth could force the Fed to remove accommodation slower than otherwise. He said that the central bank won’t raise interest rates until the US economic growth has advanced sufficiently and emerging markets could digest the interest rate hike. An extended period of rock-bottom interest rates would benefit gold as a non-interest-bearing asset, while pushing the dollar down.

Long-term sentiment toward gold, however, remained bearish as broad market expectations still called for an interest rate hike in the US to commence at some point in 2015, leaving gains in the precious metal in check.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF and a major gauge of investor sentiment towards the metal, fell to 759.14 tons on Wednesday, the lowest since December 2008.

Elsewhere on the precious metals market, silver for delivery in December fell by 1.2% to $17.255 per troy ounce by 13:30 GMT, while platinum futures for settlement in January slid 1.42% to $1 243.0 an ounce. Palladium December futures posted a hefty loss of 2.9% to trade at $741.80 per troy ounce, having hit a 1-1/2-week low of $740.00 earlier in the session.

Copper

Copper fell to the lowest since March on Thursday as jitters of a slowing global economy, and more importantly in China, fueled speculations of softening demand for the metal used in construction and wiring. Support was drawn by US industrial production expanding at the fastest pace in almost two years.

Comex copper for delivery in December traded at $2.9620 per pound at 13:26 GMT, down 1.56% on the day. Prices slid to $2.9525 earlier in the session, the lowest since March. The industrial metal shed 2.6% on Wednesday, the most since March 11th, to settle at $3.009 per pound.

Markets have been hit by the recent downbeat economic data from China, Europe and the United States.

On Wednesday, the Federal Reserve bank of New York reported that its NY Empire State Manufacturing Index slid to 6.17 in October from 27.54 a month earlier, trailing projections for a moderate drop to 20.50. This marked the worst level of business conditions in the region since April.

Support, however, was drawn as banks in top consumer China boosted lending last month, signaling their support to the governments monetary easing efforts, but direct foreign investment fell for a third consecutive month, down 1.4% in September.

Earlier in the week, China’s central bank cut an interest rate it pays lenders for the second time this month yesterday. The reduction spurred speculations of broad-based monetary easing, which would help small business and public housing.

A senior official at China’s economic planner said the nation’s investment growth should accelerate in the months to come as the government speeds up infrastructure projects. Upbeat trade data by China’s customs agency also lent some aid to the markets.

US industrial output

Expanding US industrial production also helped brighten demand prospects. The Federal Reserve reported that industrial output rose by a better-than-expected 1.0% in September from a 0.2% contraction in August, driven by a surge in utilities and a rebound in manufacturing. This was the fastest pace of expansion since November 2012 and compared to analysts projections for a 0.4% jump.

Also benefiting short-term prices, industry group the International Copper Study Group said the global copper market will experience a deficit for the fifth consecutive year in 2014, before jumping to a surplus of around 390 000 tons in 2015.