Monday Report: Gold Falls and Copper Rises

Investing.com

 Gold prices drifted lower on Monday while base metals and bond yields resumed their march higher as political risks in both the U.S. and Europe abated.

Money poured out of haven assets and into risk-sensitive ones such as stocks and other commodities as investors took heart from the phase 1 trade deal with China that averted fresh import tariffs coming into effect at the weekend, even though it did little to undo the economic damage already done by an 18-month trade war.

By 11:10 AM ET (1610 GMT), gold futures for delivery on the Comex exchange were down 0.1% at $1,479.15 a troy ounce, while spot gold was little changed at $1,479.05 an ounce.

Silver futures held up better, rising 0.1% to $17.03 an ounce, while platinum futures rose 0.1% to $930.05, outperforming on the basis that both have industrial as well as investment uses.

However, on a risk-on day, pure industrial metals performed even better: copper futures rose 1.1% to $2.812 a pound, just below the seven-month high they hit on Friday in response to the trade news.

“Copper continues to provide the cleanest story for those who are upbeat about global growth in 2020,” J.P. Morgan) analyst Natasha Kaneva wrote in a weekly note. She argued that speculative positions on the Chicago and London exchanges which have been on balance short for most of this year turned net long last week.

“The question now remains if the outlook has improved enough to see the return to a sustained speculative long position,” Kaneva said. She implied that with global growth still far from the synchronized strength that drove the last copper rally in 2017/18, the answer is probably no – she sees fair value at between $5,900 and $6,170 a ton on the LME. On Thursday it was already trading at $6,186.75.

Data released earlier pointed to a bottoming out of the slowdown in China and Europe, rather than a real rebound. China’s retail sales and industrial production picked up a little, but business surveys showed Europe’s factory activity still shrinking. Business surveys in the U.S. – the Empire State Manufacturing Index and IHSMarkit’s manufacturing PMI -- sent mixed signals.

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➤ Gold consolidates in a range, just above $1500 mark and Bulls testing the $1520 resistance

Gold consolidates in a range, just above $1500 mark and Bulls testing the $1520 resistance

Gold refreshed daily tops during the early European session, albeit lacked any strong bullish conviction and remained well below three-week tops set on Friday.

Gold has been on the up of late, however meeting some pretty strong rejection in the 1520s, a barrier much protected by the bears on the way to the grand target.

The precious metal failed to capitalize on its good trading stats positive move on Friday, rather witnessed some selling near the $1520 region amid fading safe-haven demand. This coupled with a late pickup in the US Dollar demand exerted some additional downward pressure on the dollar-denominated Gold.

Meanwhile, expectations that the Fed will cut interest rates further at its upcoming meeting at the end of October (29-30 of October) helped the non-yielding yellow precious metal to regain some positive traction on Monday. However, a combination of negative forces kept a lid on any strong follow-through move up, at least for now.

The Greenback remained well supported by the ongoing recovery in the US Treasury bond yields, while the incoming positive trade-related headlines remained supportive of a generally risk-on mood and continued weighing on the precious metal's perceived safe-haven status.

In the latest development, the US Trade Representative's office said on Friday that the US and China have made progress in trade talks and have come close to finalizing parts of a “phase one” trade deal. The US officials have said they hope to sign a deal in mid-November.

In absence of any major market-moving economic releases from the US, the commodity seems more likely to continue with its subdued/range-bound price action as investors start repositioning for this week's key event risk – the latest FOMC monetary policy update scheduled later this week.

Bears have been testing through the commitments of the bear's influence and trend-line resistance where it met the 1500 level, a psychologically important number that guarded a run towards the 1520 area guarding prospects for a test back to the key 1535 resistance target.

On failures to hold in the 1500s, bears, instead will be looking towards a 50% mean reversion of the late June swing lows to recent highs level around 1460/70.

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