Written Commentary
PRECIOUS METALS
Gold: December gold contracts pulled back after rallying more than 40% on yesterday’s news that the Treasury Department will double the size of its liquidity-support buyback operations for longer-dated debt. Meanwhile, the market interpreted the latest FOMC minutes more dovishly at the margin, as reflected in the post-release decline in two-year yields. The minutes nonetheless indicated meaningful concern about inflation, with many participants assessing that additional policy tightening could be warranted if inflation fails to decline. However, most participants expected inflation to slow in the second half of the year as energy and tariff effects faded, but saw risks as skewed upward. Markets are pricing a 31% chance of a hike next month and see 23 bps of total tightening by year end. Elsewhere, oil prices hit three-week highs. With no end to the US-Iran impasse in sight, oil supply from the Middle East will remain disrupted, keeping inflationary risks skewed upward. The risk backdrop is little changed with oil and yields still elevated and a US-Iran deal unlikely in the near term, keeping risk premium and inflationary worries elevated. Gold is likely to be subject to Fed expectations and developments in the Gulf over the coming weeks.
Silver: September contracts are up 2.45% to $67.41.
BASE METALS
Copper: Copper prices on the LME eased as LME inventories continued to climb. Benchmark three-month copper on the LME shed 0.6% to $13,970, while COMEX prices fell 1.18% to $6.42. Yesterday’s Treasury department announcement helped lower the dollar, supportive of copper. LME stocks data showed an additional 3,950 tons of inflows on Thursday, bringing stocks up 17 so far this week and up over 75% the past 10 days. The premium of the of the cash contract over the three-month forward has fallen to under $170, from $545 to start the week. Meanwhile, copper on the SHFE was up 0.2% to 107,200 yuan ($15,943.13) as the market continues to digest weak Chinese factory output and fixed asset investment data, which eased some near-term bullishness on copper prices, though those factors are likely only near-term hurdles. China’s factory output grew 4.5% in July from a year earlier, below expectations, while fixed-asset investment contracted 6.7% in the January-July period.
Zinc: Zinc gained 0.9% to $3,742.
Aluminum: Aluminum fell 1.4% to $3,182.
Tin: Tin dropped 1.5% to $54,700.
Lead: Lead dipped 0.2% to $1,884.
Nickel: Nickel shed 1.5% to $16,850.
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