Commodities trading outlook: gold set for weekly drop on dollar, risk appetite; copper gains

Gold was headed to its first weekly decline in three as the dollar strengthened and as an upbeat US economic outlook and a stabilizing ruble revived risk appetite. Silver, platinum and palladium were mostly steady. Copper advanced as investors returned to the market.

Comex gold for delivery in February gained 0.22% to $1 197.4 per troy ounce by 12:38 GMT, having shifted in a daily range of $1 201.5-$1 193.2 an ounce. The precious metal edged up 0.03% on Thursday to $1 194.8.

Gold remained pressured under $1 200 as higher equities and a firmer US dollar dampened curbed its appeal. Demand outlook was further dimmed as the ruble stabilized and oil prices hovered near the lowest in 5-1/2-years, implying weak inflationary pressures.

Prices slid during the weeks first two trading sessions on pre-Fed meeting worries of an immediate rate hike. And although Fed Chair Janet Yellen announced that policy makers would keep borrowing costs near zero for “at least a couple of meetings”, the confirmation of a hike in 2015 kept the metal from recovering positions.

Ms. Yellen also pointed out the criteria which have to be fulfilled in order to give the green light for an increase in interest rates, which once lifted will probably not reach normal levels until 2017.

Fed officials might be delaying the increase on worries that inflation is still below their target of 2%, mainly because of plunging oil prices, although US jobless claims dropped last week to a six-week low, yesterday’s report showed. Moreover, policy makers expect the US economy to reach full employment next year, an objective the central bank wants to see fulfilled before borrowing costs are raised.

The US dollar index for settlement in March was up 0.09% at 89.555 at 12:42 GMT, holding in a daily range of 89.695-89.400. The US currency gauge gained 0.17% on Wednesday to 89.477. A stronger greenback makes dollar-denominated commodities more expensive for holders of foreign currencies and curbs their appeal as an alternative investment, and vice versa.

Economists at Wall Street’s largest banks projected borrowing costs to increase more than once in 2015, with the first one to come by June, according to a Reuters survey.

“Gold prices are currently capped by a stronger dollar and ongoing weak oil prices,” James Steel, an analyst at HSBC, wrote in a note cited by the CNBC. “Equity-market gains further reduce the appeal of alternative assets like gold.”

Meanwhile, India’s gold market has reached oversupplied levels following an increase in deliveries during the recent three months. Demand in the world’s second-largest gold buyer is projected to decrease as importers offered the precious metal at a $2 discount versus London prices.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained unchanged for a second time on Thursday at 721.56 tons, after two days of declines.

Copper

Copper gained as re-emerging risk appetite encouraged investors to return to the market, comforted by Feds no-rush stance to raise interest rates, coupled with a stabilization in oil prices and the Russian ruble.

Comex copper for delivery in March traded 1.24% higher at $2.8890 per pound at 12:42 GMT, having earlier shifted in a daily range of $2.9035-$2.8460 a pound. The industrial metal fell 0.59% on Thursday to $2.8535 per pound. Prices are down 1.5% so far this week.

The Federal Reserve dropping its “considerable time” phrase to adopt the “patient” stance came as a relief for riskier assets, with Fed Chair Janet Yellen saying that once the hike commences, interest rates will not reach “normal” levels before 2017.

US crude finding a somewhat temporary floor at around $55 and Brent at $60 contributed to a revival of interest in commodities, while Russia stabilizing its collapsed currency also helped ease investor jitters.

Nevertheless, the industrial metal used for wiring and construction headed for its first weekly drop in three as data earlier in the week added to concerns of exhaustion in the Chinese economy.

Prices of new homes fell by an annualized 3.7% in November, China’s National Bureau of Statistics reported, defying government efforts to revive it. This was the third straight monthly drop.

Preliminary private data earlier in the week showed that factory activity in China slowed for the first time in seven months in December, adding to a pile of downbeat data from the world’s biggest consumer of the metal.