Commodities trading outlook: gold dips, copper falls on China housing data

Gold slid on Tuesday amid speculations that demand for the yellow metal will drop as China celebrates its Lunar New Year holiday, despite Europe’s failure to reach an agreement over Greece’s debt. Silver, platinum and palladium fell as well. Copper retreated on continuous signs of economic slowdown in top consumer China.

Comex gold for delivery in April was down $5.4 from Friday’s close of $1 227.1 at $1 221.7 per troy ounce at 10:30 GMT. Floor trading was suspended on Monday due to the Presidents’ Day holiday and transactions will be booked today for settlement purposes.

Physical buying in China has supported gold prices ahead of the Lunar New Year holiday as it is customary to exchange gold gifts during the celebrations, but demand for the metal is expected to slow down after the period ends.

The yellow metal was trading $3 to $4 higher than the global benchmark in Shanghai, outlining strong demand. However, Monday’s spot volumes dropped 18% compared to last Friday.

“Some form of consolidation is expected to occur as Asian traders close out positions ahead of the long Chinese New Year holidays,” Howie Lee, an investment analyst at Phillip Futures Pte, wrote in a note, cited by Bloomberg. Mr. Lee also said he expect prices to range between $1 215 and $1 240.

Meanwhile, Eurogroup talks on Monday ended without success of hammering out a new bailout deal for Europe’s most indebted country. The political turmoil has provided a boost for gold prices as investors launched a wave of safe-heaven bids.

Greece’s current deal is set to expire at the end of the month, leaving the country without further funding and possibly running out of money in March. Europe’s finance ministers met in Brussels in order to prevent that scenario as it may lead to Greece’s exit from the Eurozone.

Greek Finance Minister Yanis Varoufakis rebuffed a proposal by Dutch Finance Minister Jeroen Dijsselbloem for Athens to ask for a six-month extension of its current deal.

Greece has previously said that it does not seek additional time and would rather have a new agreement. Mr. Varoufakis said that Europe’s officials did not offer the same agreement as the European Commission, which consisted of four to six months of credit for the country in exchange for a pause on its anti-austerity policies.

Athens was ready to ink the deal proposed by the European Commission, but described Eurogroups proposal as “unacceptable” and “highly problematic”. Mr. Dijsselbloem said Greece had until the end of the week to request an extension.

“Greece still has at least ten days to iron out a new bailout package, but until then, markets will continue to be kept on the edge of their seats.” Mr. Lee said.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained at 768.26 tons on Friday. Changes in holdings typically move gold prices in the same direction.

Copper

Comex copper for delivery in March traded $0.011 lower from Fridays close of $2.6050 per pound at $2.5940 at 10:29 GMT.

The National Bureau of Statistics reported on Tuesday that house prices in China fell by an annualized 5.1% in January, a fifth straight monthly decline. New-home prices slid from a month earlier in 64 out of 70 cities tracked by the statistics agency.

Fang Junfeng, an analyst at Shanghai Cifco Futures Co., said for Bloomberg: “China’s property data remains weak and shows that the industry is still on a downward track. Metals consumption growth in China has been slowing on the property step back and the trend is expected to continue this year.”

CNBC reported on Monday, citing policy insiders, that Chinese authorities will take further measures to ensure economic growth of about 7% in 2015, including cutting interest rates, boosting liquidity and tolerating some currency weakness. The People’s Bank of China recently reduced the minimum reserve requirements for banks by 1% after it cut interest rates in late 2014 for the first time in over two years.

The market was also jittery ahead of the week-long holidays in China and as the uncertainty around the Eurozones stability spurred concerns about European demand.

Data on Monday showed Japans economy swung out of recession in the fourth-quarter of 2014, but growth fell short of expectations as household and corporate spending disappointed. This complemented a drop in US consumer confidence in February, according to a preliminary reading on Friday.

In Europe, consumer inflation in the UK plunged in January to the lowest since the data series began in 1989, while investor confidence in Germany jumped to the highest in a year in February, boosted by the upcoming implementation of fresh stimulus by the ECB.

Providing some support on the supply side, this years global copper surplus may be thinner than previously expected as BHP Billiton Ltd. reported that as much as 70 000 tons of refined copper output will be lost due to repairs at the largest processing mill at its Australian Olympic Dam mine.

This would remove a large fraction of an expected surplus, which analysts had estimated prior to the announcement at 120 000 – 220 000 tons. The supply disruptions will probably cut global copper output growth to 5.1% in 2015, Australia & New Zealand Banking Group Ltd. said.

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