Commodities trading outlook: gold gives back gains on dollar, copper hovers near 4-1/2-year low

Gold erased its daily gains on Monday amid a firm US dollar and weak investor interest but remained supported near the $1 200 level by concerns of fresh elections in Greece and fears of the country exiting the euro area. Copper was little changed after earlier falling to the lowest since mid-2010 on softer demand prospects from top consumer China. Silver, platinum and palladium fell.

Comex gold for delivery in February fell 0.16% to $1 193.4 per troy ounce by 13:02 GMT, having shifted in a daily range of $1 197.5 -$1 190.5 an ounce. The precious metal climbed 1.86% on Friday to $1 195.3, but not before it reached $1 199.1.

Last session’s sharp jump came at a time of low trader activity due to the Christmas and year-end holidays and it was doubtful whether the metal would retain its gains on Monday.

However, the market drew support after Greek lawmakers failed to elect a new president in a final voting round on Monday, which called for a snap election that raised the risk of a Greek euro exit. European stocks edged lower.

Nevertheless, a strong dollar kept the gold market pinned down, with the greenback hovering near the highest since 2006 against a basket of six major trading peers. The US dollar index for settlement in March was down 0.08% at 90.240 at 13:05 GMT, holding in a daily range of 90.390 – 90.080. The US currency gauge gained 0.10% on Friday to 90.310. 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.

Reflecting the persisting bearish sentiment, assets in the SPDR Gold Trust, the biggest bullion-backed ETF, fell 0.6 tons to 712.30 on Friday, the lowest in six years.

Overnight physical demand in Asia was also unimpressive. However, data by Hong Kongs Census and Statistics Department showed that Chinas gold imports from the city surged 34% to 149.257 tons in November from a month earlier, the highest level since February, indicating robust demand at low prices ahead of the Lunar New Year.

Copper

Recurring signs of economic slowdown in China, the leading copper consumer, kept the industrial metal pressured near the lowest level in almost 4-1/2 years.

Comex copper for delivery in March traded 0.23% higher at $2.8205 per pound at 13:02 GMT, having shifted in a daily range between $2.8470 and $2.7560, the lowest since June 2010. The industrial metal slid 1.38% to $2.8140 per pound on Friday, a fourth consecutive session of losses.

Chinas National Bureau of Statistics reported on Monday that industrial profits in the Asian country slid the most in two years in November, adding to other signs of exhaustion in the worlds second-biggest economy. The cooling Chinese economy, which grew in the third quarter at the slowest pace since the beginning of the global financial crisis, has forced the Peoples Bank of China to lower interest rates in a push to jump-start economic activity.

However, a series of downbeat economic data has raised the alarm China might not be able to reach the governments 7.5% annual growth target this year, while expansion might further slow down to 7% in 2015.

Data on Wednesday is expected to show that activity in Chinas manufacturing sector probably confirmed a preliminary reading and contracted in December. HSBC, in collaboration with Markit Economics, is expected to report that the corresponding HSBC Manufacturing Purchasing Managers Index fell to 49.5 compared to 50.0 in November. If confirmed, this would be the lowest reading in 7 months. Official government data is due later in the week.

Hongbin Qu, Chief Economist, China & CoHead of Asian Economic Research at HSBC commented in a preliminary report released on December 16th: “The manufacturing slowdown continues in December and points to a weak ending for 2014. The rising disinflationary pressures, which fundamentally reflect weak demand, warrant further monetary easing in the coming months.”

Market players will also be looking at data from the US for further trading cues. Due later in the week are Tuesdays Conference Board Consumer Confidence and home prices, Wednesdays initial jobless claims and pending home sales, as well as Fridays ISM Manufacturing PMI.