Written Commentary
PRECIOUS METALS
Gold: December gold contracts continued to feel modest pressure in the wake of July’s PCE data, which showed the headline figure rise 0.2% MoM and 3.7% YoY and has led the dollar to recoup some losses. Core PCE rose 0.2% MoM at 3.3% YoY. Markets are largely in wait-and-see mode ahead of remarks from Fed Chair Warsh at the Jackson Hole Symposium on Friday. Evidence of his roadmap for inflation will be keenly watched, failure to materially scope out the Fed’s reaction function and more or less repeat his rhetoric from earlier press conferences could see gold prices rise further.
Elsewhere in Wednesday’s data showed private domestic final demand was revised to a robust 4.2%, real GDI rose 2.2%, and PCE inflation was revised higher. The report therefore reinforces the message from July PCE that the economy retains enough domestic-demand resilience to keep inflation risks elevated and heighten expectations the that Fed should move upward on policy.
Markets are pricing a 35% chance of a hike next month and see 24 bps of total tightening by year end. 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.
Silver: September contracts are down 0.27% to $67.85.
BASE METALS
Copper: Copper prices on the LME held steady above the $14,000 mark, while COMEX prices are down 0.45% $6.57. The copper story has little changed in recent days, with fundamentals still in place while a stronger dollar in the wake of July’s PCE data is adding near-term pressure to the metal. However, underlying fundamentals of low LME inventories and ongoing supply worries are likely to continue to underpin prices, with the recent pullback suggesting a wave of profit-taking than any other sort of change. Available copper in LME warehouses had fallen nearly 50% in between June and mid-August, though stocks have since rebounded modestly. That rebound has lowered the premium of the cash contract to the three-month forward from $545 in mid-August to around $70. However, inventory remains low and around 55% of the total metal in the LME system are on cancelled warrants.
Zinc: Zinc fell 0.96% to $3,855.
Aluminum: Aluminum dipped 0.2%.
Tin: Tin added 0.15%.
Lead: Lead lost 0.4%.
Nickel: Nickel was little changed.
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