Commodities trading outlook: gold gains on safety demand, copper steady

Gold rose for a third day to hit three-week highs as political uncertainty in Greece led a weakness in equities, sparking safe haven bids for bullion which offset the negative effects of a stronger dollar. Palladium and platinum ticked up, while silver was little changed. Copper hovered near 4-year lows as risk appetite remained subdued and demand growth outlook in major consumers seemed dismal.

Comex gold for delivery in February gained 0.45% to $1 209.4 per troy ounce by 12:26 GMT, having shifted in a daily range of $1 201.6 and $1 214.4, its highest since December 16th. The precious metal edged up 1.50% on Monday to $1 204.0, breaking the key level of $1 200.

Equities were hurt by falling oil prices and the political unrest related to Greece’s future. Yesterday both the Dow Jones Industrial Average and S&P 500 fell the most during a session in around three months.

Naeem Aslam, chief market analyst at Ava Capital Markets Ltd. in Dublin, said, cited by Bloomberg: “The precious metal is in demand as traders want to hedge their position against Greek-exit uncertainty. While the chances of Greece leaving the euro zone are very slim, investors do not want to put themselves under a situation where they are not hedged.”

Greek Prime Minister Antonis Samaras said that a victory for the main opposition party Syriza in the upcoming snap election would cause default and Greece’s exit from the euro area.

Syriza leader Alexis Tsipras said his party would end German-led austerity, vowing to restructure his nation’s debt. “Greece will write down on most of the nominal value of debt, so that it becomes sustainable,” Tsipras said.

European equities were further pressured as crude oil slid to new multi-year lows, prompting a drop in energy stocks and forcing many investors to seek safety in US and German bonds, as well as gold and the Japanese yen.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, marked their first increase in two weeks and climbed 1.61 tons to 710.81 tons.

Another sign of improving gold demand was brought by hedge and money managers, who increased their long positions in gold and silver futures during the week ended December 30, marking the first increase in almost a month.

Gold traded $5 an ounce higher than the global benchmark on the Shanghai Gold Exchange. Despite the premium’s slight decrease compared to yesterday, it is still considered by metal dealers as a sign of greater demand.

Interest in the yellow metal is expected to stay strong at least until the end of the Lunar New Year holiday, celebrated in China on February 19-20th, when people exchange gold gifts or buy the metal for good luck.

Rates, dollar

However, investors are cautious about their gold position as the robust dollar could cap any extended rallies in the precious metal. The Federal Reserve has indicated that an interest rate hike is likely to begin this year, provided key economic figures meet expectations. Investors will be scouring through tomorrow’s Fed minutes for clues of when the central bank might move to raise borrowing costs.

The US dollar index for settlement in March was up 0.28% at 91.880 at 12:26 GMT, holding in a daily range of 91.915-91.415. The US currency gauge gained 0.26% on Monday to 91.622. 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.

Copper

Copper was steady after falling for three days but held near the lowest level in 4-1/2 years as the political crisis in Greece curbed risk appetite during times of slowing manufacturing growth in China, Europe and the US.

Comex copper for delivery in March traded 0.09% lower at $2.7635 at 12:25 GMT, having shifted in a daily range of $2.7820-$2.7565. The contract slid 1.83% yesterday to $2.7660 after hitting an intraday low of $2.7440, the weakest level since October 2009.

“Any development on Greece triggers earthquakes in the broader market from bonds to equities, from which commodities cannot survive,” said for Bloomberg Fang Junfeng, an analyst at Shanghai Cifco Futures Co.

Prices have additionally been pressured as almost non-existent manufacturing growth in top consumer China, coupled with subpar factory activity growth in Europe and a slowdown in the US sounded a negative note for demand to start 2015.

Data released today showed that business activity in the Eurozone grew less than projected in December, while an upcoming report is expected to show that factory orders in the US contracted in November and the service sector grew slower in December from a month earlier, although it is still projected to post hefty growth.

On the positive side, services activity in China expanded at a faster pace last month, Markit Economics reported, leading a pickup in overall business activity to offset a fractional decline in output at manufacturers.

The Asian country will speed up 300 infrastructure projects valued at $1.1 trillion this year as policy makers try to boost economic activity and ensure growth doesnt fall below 7%. However, some analysts were doubtful whether this would ensure enough additional consumption of base metals.

Meanwhile, concerns of oversupply this year were exacerbated as China introduced a new export tax rebate for some copper products, which might increase shipments as much as tenfold. Beijing hiked the export tax rebate for copper foils by 4% to 17%, while adding a 9% rebate for shipments of bars, rods and profiles.