Commodities trading outlook: gold below $1 200 as dollar strengthens, copper drops

Gold fell back below the $1 200 mark on Tuesday as the US dollar regained ground and hovered near the highest level in four and a half years, while oil prices dropped. Copper reversed overnight gains amid fears of weaker demand in China and downbeat economic data from Europe. Silver, platinum and palladium also declined.

Comex gold for delivery in February slid 2.04% to $1 193.3 per troy ounce by 12:46 GMT, having shifted in a daily range of $1 212.6-$1 191.4. The precious metal surged by 3.62% to $1 218.1 on Monday, having shifted in an $80 daily range between a three-week low of $1 141.7 and a five-week high of $1 221.0 an ounce.

Gold pared overnight gains as the US dollar regained ground on Tuesday and crude oil resumed its decline. The precious metal was heavily pressured as Swiss voters dismissed a proposal for the SNB to boost its gold holdings, while crumbling oil prices curbed concerns of inflation, against which gold is used as a hedge.

Abhishek Chinchalkar, an analyst at Mumbai-based AnandRathi Commodities Ltd., said in a note, cited by Bloomberg: “The dollar and crude will continue being crucial for gold’s further trajectory. If crude oil fails to sustain its overnight gains and if the dollar holds on to its recent gains, gold is likely to face headwinds ahead.”

The US dollar index for settlement in December stood at 88.345 at 12:45 GMT, up 0.41% on the day, having ranged between 88.355 and 87.995 during the day. The contract rose to 88.505 on Monday, an inch below November 24th’s 4-1/2-year high of 88.515, before settling 0.49% lower at 87.982.

Swiss people cast a decisive “no” vote in a referendum on Sunday to ban the Swiss National Bank from selling its gold reserves and require the central bank to back at least 20% of its assets with the precious metal, from nearly 8% previously.

The proposal met broad disagreement, with 77% of participants voting against the measure. A “yes” vote would have led to the purchase of 1 500 tons of gold over the next five years.

Providing some support, India surprisingly eased gold import curbs last week but analysts expected no significant spike in demand in the near-term as the world’s second-biggest consumer of the precious metal was adequately supplied. Physical demand in China was sluggish on Tuesday.

Reflecting downbeat sentiment toward the precious metal, assets in the SPDR Gold Trust, the biggest bullion-backed ETF, were unchanged at 717.63 tons on Monday, the lowest since September 2008. The fund hasn’t seen an inflow since November 17th.

Copper

Copper retreated after rebounding from a 4-1/2-year low on Monday as fears of slowing demand from top consumer China persisted, while oil prices resumed their rout and downbeat data from Europe added to economic concerns.

Comex copper for delivery in March fell 1.19% to $2.8635 per pound by 12:45 GMT, having ranged between $2.8990 and $2.8525 during the day. The industrial metal slid to $2.7650 on Monday, the lowest since June 2010, before rebounding to settle the day 1.88% higher at $2.8980 per pound. This was the first daily gain in six.

The industrial metal used in wiring and construction remained under pressure after data by Chinas National Bureau of Statistics showed that output growth at factories was almost non-existent in November. The Chinese manufacturing PMI fell to an eight-month low of 50.3 last month from 50.8 in October, trailing projections for a drop to 50.5.

A separate private report by HSBC and Markit Economics, which focuses on smaller privately-held enterprises, showed that expansion in Chinese factory output came to a halt in November. The HSBC Manufacturing PMI registered at 50.0, confirming a preliminary reading, as manufacturing production fell for the first time since May. There was a moderate increase in total new business but new export growth slowed for a second consecutive month.

Oil prices plunging to levels not seen since 2009 triggered sell-offs in commodities across the board, while additional downbeat data from Europe added to the gloomy outlook.

Nicholas Snowdon, metals analyst at Standard Chartered in London, said for CNBC: “The market remains in a state of flux and until theres a stabilisation in oil prices, its going to be difficult for base metals prices to consolidate.”

Europe worries

Data by Eurostat showed on Tuesday that producer prices in the Eurozone fell by 0.4% on a monthly basis in October, the most in a year, compared to economists forecasts for a 0.3% jump. Year-on-year, the Producer Price Index declined by an expected 1.3%.

This added to Mondays disappointing numbers. Italy’s economy contracted by an annualized 0.5% in the third quarter, while factory activity slowed for a second straight month. France’s manufacturing sector also remained in the contraction zone, albeit posting a better-than-expected figure, while Germany unexpectedly slid below the level 50 threshold. The Eurozone as a whole saw manufacturing activity hardly grow, with the corresponding PMI coming in at 50.1 from 50.4 in October led by robust growth in Spain’s factory production.

Providing some support were rumors that the Peoples Bank of China might introduce additional stimulus measures, according to Reuters, including a reduction in banks minimum reserve requirements. However, PBOCs previous step to ease money supply, the surprising November 21st interest rate cut, did little to boost confidence in the copper market given the piling lackluster data, resulting in only a temporary rally.