Gold Finds Modest Relief in Oil Drop

PRECIOUS METALS

Gold: December gold contracts rose over 1% overnight to $4,200, moving opposite of brent prices despite the dollar maintaining its recent strength. President Trump’s comments ruling out an attack on Iran before the midterm elections, alongside reports of productive talks, have reduced some immediate geopolitical concern. Still, macro headwinds and geopolitical uncertainty pressures persist, keeping the opportunity cost of gold high. St. Louis Fed President Musalem said on Thursday the US central bank will need to hike rates again to bring inflation back to its 2% target, though he did not make the case that a hike in October would be necessary. Fed outlook remains as a broad headwind for gold. Fed Governor Waller said that additional rate hikes will likely be needed to lower inflation to target, but noted there was “flexibility” about the pace of increases. September’s meeting minutes showed policymakers discussed agreed that the labor market was near maximum employment and growth remained solid, reducing the need to protect against downside employment risks. The main policy question was not September’s hike, but how much further to tighten: most expected another hike by year-end, although they differed over whether it was needed under their baseline outlook or primarily as insurance against upside inflation risks. Recent survey evidence has continued to support the idea that economic growth remains robust, which gives ample reason to expect yields will move modestly higher over the next couple of months following their rapid rise recently. These dynamics are likely to contribute to a challenging environment for gold over the coming months.

Silver: December contracts are up 2.70% to $59.07.

BASE METALS

Copper: Copper prices rose overnight as mine supply concerns and signs of demand in China lifted prices. LME copper was up 1.8% at $14,565, while US prices rose 2% to $6.70. The Yangshan copper premium closed the week at $135 a ton, a four-year high, as traders returned from holiday. SHFE inventories closed the week at 58,744 tons, up 20,000 tons last week, which marked a near three-year low. Total stocks at LME-registered warehouses dropped to a six-week low of 233,025. The cash to three-month forward premium traded at $97, indicating near-term tightness. US stockpiling continues to support tighter global inventories, which raises the risk that a slowdown in accumulation in the US will ease tightness in global warehouses and prices.

In the Philippines, workers at Philex Mining Corporation voted to go on strike. This follows moves from workers at Antofagasta’s Centinela copper mine in Chile. Meanwhile, BHP has requested a government mediation to avert a potential strike at the Escondida mine, which is the world’s biggest. Together, these three mines account for around 5.5% of global copper production according to CRU principal analyst Craig Lang. Given that the copper market is tight on inventories currently outside of the US, the strikes are having a larger-than-normal impact on prices.

Zinc: Zinc gained 1.7% to $3,781.

Aluminum: Aluminum rose 0.6% to $3,069.

Tin: Tin climbed 3.0% to $53,000

Lead: Lead added 1.2% to $1,883.

Nickel: Nickel was up 1.0% at $15,710.

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