Written Commentary
PRECIOUS METALS
Gold: August gold contracts were little changed, despite a move higher in the dollar while oil prices rose marginally. The failure for gold to hold recent gains highlights the current sentiment that macro factors are likely to continue to pressure the metal. Focus for gold will center around upcoming labor data today and Thursday for more clues on the Fed’s potential policy path. Money markets have been broadly unchanged in the expectations for monetary policy since last week, pricing around 34 bps of total tightening and remaining favorable to a hike in October. A stronger-than-expected June nonfarm payrolls reading is likely to reinforce expectations of a more hawkish Fed, which could risk a break below $4,000 for gold.
Cyclically, gold continues to face near-term headwinds, especially as a hawkish-Fed has led investors to fade the debasement theme present earlier this year and late last year. Fed rate hike potential has also weighed on ETF demand, which is rate-sensitive. However, longer-term central bank reserve diversification is likely to offer firm support; a recent World Gold Council survey said a record 45% of the 76 central banks surveyed between February and May expect to increase their own gold reserves over the next 12 months.
For gold, the recent hawkish repricing in Fed policy expectations and a stronger dollar have significantly weighed on the metal. Recent dynamics continue to show that gold is moderately correlated (negatively) with moves in the dollar and the 10-year TIPS yield; the dollar’s strength following the FOMC meeting being the main catalyst for the move lower in gold.
Silver: July Silver is up 1.6% to $59.12.
BASE METALS
Copper: Copper prices rose, support by upbeat factory data out of China with benchmark three-month copper on the London Metal Exchange up 0.6% to $13,364 and COMEX copper prices are 1.4% higher to $6.18. The official PMI rose to 50.3 in June from 50.0 in May, according to the National Bureau of Statistics. That was above a median forecast of 50.0 in a Reuters poll. Meanwhile, the correlation between LME copper and domestic technology stocks is at its highest level since 2012 this quarter despite the end use in this sector at less than 2% of total demand.
A stronger dollar and hawkish-repricing in Fed policy expectations are the main pressures for metals and weigh on sentiment for traders. Still, fundamentals for copper remain unchanged with lower LME inventory, shipments to the US, and broad-demand for AI infrastructure and energy transition expected to underpin demand. However, the macro environment for metals remains challenging, as US rate expectations continue to have a downward effect on prices. Oil prices will need to drop substantially and evidence of transitory inflation are likely needed to reduce rate hike expectations to reduce inflation expectations.
Zinc: Zinc rose 2% to $3,544.
Aluminum: Aluminum was up 0.7% at $3,110.
Tin: Tin added 1.8% to $51,300.
Lead: Lead rose 2% to $3,544.
Nickel: Nickel rose 0.6% to $16,400.
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