Commodities trading outlook: gold edges up on weak stocks, dollar; copper rebounds from 4-1/2-year low

Gold ticked up on Tuesday on equities weakness after scoring its biggest daily drop in a week as the dollar hit fresh multi-year highs. Silver gained, while platinum and palladium were little changed. Copper rebounded from a 4-1/2-year low as the US dollar temporarily eased, giving dollar-denominated commodities a breather.

Comex gold for delivery in February gained 0.12% to $1 183.3 per troy ounce by 12:42 GMT, having shifted in a daily range of $1 190.7-$1 180.5 an ounce. The precious metal dropped 1.12% on Monday to $1 181.9, its biggest daily decline since December 22.

Growing concerns about Greeces future and a fresh slump in oil prices to the lowest in 5-1/2 years sparked a sell-off in European equities, led by energy companies, boosting demand for gold as an alternative investment. The US dollar also eased against a basket of major currencies, led by a drop against the yen as pre-New Year jitters, including the snap Greece election, sought safety in the Japanese currency.

“The decline in stocks is triggering some bids for gold but the bigger influence on prices is still the dollar,” said a precious metals trader in Singapore, cited by CNBC.

The US dollar index for settlement in March was down 0.11% at 90.395 at 12:45 GMT, holding in a daily range between a 9-year high of 90.660 and 90.235. The US currency gauge gained 0.21% on Monday to 90.496. 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.

Despite the rally, sentiment toward gold remained bearish-biased. Reflecting that sentiment, assets in the SPDR Gold Trust, the biggest bullion-backed ETF, fell 0.6 tons to a six-year low of 712.30 tons on Friday and remained unchanged on Monday. Holding changes typically move gold prices in the same direction.

As 2014 progressed the precious metal was pushed down by a robust dollar and equities surging to record highs. Cheaper oil, which implies lower inflationary pressures, and strong US economic data also added to gold’s decline. The precious metal is down around 1.5% this year, compared to 2013s 28% slump, and is expected to fall further in 2015 as the Federal Reserve will most likely move to raise interest rates.

Copper

Copper drifted away from Mondays 4-1/2-year low as the US dollar weakened but gains were capped by expectations for private data to show a contraction in Chinas manufacturing sector in December.

Comex copper for delivery in March rose 0.30% to $2.8305 per pound by 12:46 GMT, having shifted in a daily range of $2.8525-$2.8130. The industrial metal settled 0.28% higher at $2.8220 per pound yesterday, having earlier fallen to $2.7560, the lowest since June 2010.

Tetsu Emori, a senior fund manager at Astmax Asset Management Inc. in Tokyo, said, cited by Bloomberg: “Most people are feeling quite negative,” referring to base metals. “The market will be looking at how the Chinese government will take action to stimulate the economy.”

A long series of downbeat Chinese economic data throughout the year has raised the alarm China might not be able to reach the government’s 7.5% annual growth target this year, while expansion might further slow down to 7% in 2015.

Data on Wednesday may show that activity in China’s manufacturing sector confirmed preliminary estimates 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.”

The National Bureau of Statistics reported on Monday that industrial profits in China slid the most in two years in November, adding to other signs of exhaustion in the world’s 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 People’s Bank of China to lower interest rates in a push to jump-start economic activity.

Market players will also be looking at data from the US for further trading cues. Due throughout the week are Tuesday’s Conference Board Consumer Confidence and home prices, Wednesday’s initial jobless claims and pending home sales, as well as Friday’s ISM Manufacturing PMI.