Commodities trading outlook: gold dips on Fed rate prospects, copper swings

Gold scored its biggest monthly increase in three years as investors sought the safety of the metal amid disappointing projections of global growth but steadied to trade around $1 280 an ounce after Fed officials boosted their prospects for the US economy. Copper swung between gains and losses as investors weighed slowing China growth against speculations for additional stimulus measures.

Comex gold for delivery in April fell 0.34% to $1 274.8 per troy ounce by 10:38 GMT, shifting in a daily range of $1 283.9-$1 274.1. The precious metal rose 1.86% to $1 279.2 on Friday.

Federal Reserve Bank of St. Louis President James Bullard assured that interest rates would not remain near close to zero much longer. Mr. Bullard added that the Fed will initiate its first interest rate hike in almost ten years by June, after policy makers boosted their assessment of the US economy growth to “solid”.

An eventual increase in borrowing costs would curb demand for non-interest-bearing assets, including gold.

However, Q4 US gross domestic product came below expectations of a 3% increase on Friday and landed at 2.6%, nearly half the expansion compared to the third quarter of 2014.

The US dollar index for settlement in March was down 0.18% at 94.825 at 10:38 GMT, holding in a daily range of 95.075-94.805. The US currency gauge fell 0.01% on Friday to 94.998. 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.

Additionally, China’s factory sector contracted for the first time since 2012, according to the National Bureau of Statistics.

“Overall there’s a sense that the global economy is not doing well and that has boosted the safe-haven appeal of gold. In the short term, we should see gold stay above $1,250,” said Howie Lee, investment analyst at Phillip Futures, cited by CNBC.

Speculators once again boosted their buying bids during the week ended January 27th, net-long positions in futures and options climbed 15% to 167 693.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, did not change of Friday and remained at their highest level since October at 758.37 tons. Changes in holdings typically move gold prices in the same direction.

Copper

The industrial metal swung between gains and losses after the latest series of downbeat Chinese data fueled hopes for additional stimulus measures to kick-start the countrys cooling economy.

Comex copper for delivery in March traded 0.36% lower at $2.4855 per per pound at 10:38 GMT, having shifted in a daily range of $2.5165-$2.4635. The contract rose 1.75% on Friday to $2.4945, settling the month almost 12% lower.

Government data showed that activity in China’s manufacturing sector contracted last month for the first time since September 2012, with the corresponding Manufacturing PMI coming in at 49.8 from 50.1 in December. Analysts had projected a jump to 50.2. The country is the worlds biggest consumer of copper, accounting for about 40% of global demand.

A separate private gauge showed that factory activity in China declined for a second straight month. The HSBC China Manufacturing PMI rose to 49.7 in January from 49.6 in December, mismatching a preliminary reading of 49.8. The report stated that Chinese manufacturers saw a fractional deterioration in operating conditions and although output slightly rose and new orders stabilized, employment levels were cut for the fifteenth straight month.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC commented in the report: “Both new orders and new export orders saw downward revisions, but still signalled marginal expansion. We think demand in the manufacturing sector remains weak and more aggressive monetary and fiscal easing measures will be needed to prevent another sharp slowdown in growth.”

Meanwhile, Chinas State Reserve Bureau is expected to take advantage of lower prices this year and purchase around 200 000 tons of refined copper from the international market, industry sources said last week.

Shanghai traded copper jumped nearly 3% today as the downbeat data fueled speculations for increased stimulus, while bourse data showed that open interest of copper contracts on the Shanghai Futures Exchange jumped 12% last week, the biggest gain since November.

James Glenn, analyst at National Australia Bank, said for CNBC: “You could see restocking ahead of Chinese New Year, and there are increasing chances the SRB could take advantage of lower prices as well, which could support prices in this quarter. Still in terms of real demand, we dont see a lot turning around in the near term.”