MORNING VIEW: Haven demand supports gold, caps base metals

Three-month base metals prices on the London Metal Exchange were mixed so far on Friday June 14, reflecting deteriorating sentiment in broader risk markets amid the recent uptick in tensions in the Middle East and while global trade tensions overhang.

Military officials from the United States have released a video of what they say shows Iran's Revolutionary Guard removing an unexploded limpet mine from the side of one of two oil tankers attacked in the Gulf of Oman this week. The attacks have ratcheted up tensions between the US and Iran, in turn dampening investors’ risk appetite.

As a result, only nickel (+1.4%) and zinc were trading positively on the LME this morning, while the rest of the complex were down by an average of 0.2%.

Trading volumes have been relatively light, with 5,121 lots traded as at 6.37am London time.

In China, base metals prices on the Shanghai Futures Exchange were similarly mixed; the most-traded contracts for nickel (+0.8%), lead (+0.4%) and copper (+0.2%) were in positive territory, while those for aluminium (-0.3%), tin (-0.5%) and zinc (-0.7%) weakened.

In other metals in China, iron ore prices were up by 1.8% at 448 yuan per tonne on the Dalian Commodity Exchange.

Precious metals
In the precious metals sphere, spot gold and silver prices remain supported, with the former testing resistance at the year-to-date high around $1,348 per oz. Platinum and palladium were both in positive ground, up by around 0.1%, after the latter closed Thursday with a solid 2.5% gain.

Wider markets
Oil prices remain well bid, with the spot Brent crude oil price most recently up by 0.8% at $61.78 per barrel, bolstered by concerns of supply disruptions following the attacks on two oil tankers in the Gulf of Oman.

Equities in Asia today were mixed this morning, with the Nikkei 225 up by 0.3% while the Hang Seng Index and CSI 300 were down by 0.5% and 0.3% respectively.

Currencies
In currencies, the US dollar remains steady against its major counterparts ahead of the Federal Reserve meeting next week.

Key data
Economic data overnight confirmed the decline in Japan’s industrial production during April, which contracted by 1.1% year on year. Markets are still awaiting important data from China, which has been delayed. Focus for the rest of today include consumer price index (CPI) data from France and the latest meetings of the Eurozone's economic and finance ministers.

Retail sales figures from the US will also be important to gauge consumer sentiment and are forecast to show a 0.7% increase in May, after contracting by 0.2% in April.

Other US releases due on Friday include the industrial production estimate for May, forecast to rise by 0.2%, and business inventories that are expected to rise by 0.4% in April. The preliminary consumer sentiment and inflation estimates from the University of Michigan are also scheduled.

Today’s key theme and views
In general the base metals appear comfortable consolidating as trade uncertainties continue to overhang. But we maintain our overall view that a trade deal between China and the US could see the complex rally from its current oversold conditions.

In the precious metals, gold has clearly benefited from the increase in geopolitical tensions in the Middle East. While resistance has emerged, we believe the current macroeconomic and geopolitical backdrop, coupled with the rate-cut expectations and low speculative positioning, are laying the foundation for further gains in the short-to-medium term.

macroeconomic data

James Moore

james.moore@fastmarkets.com

Published

James Moore

June 14, 2019

08:48 GMT

London