China Data, Fed in Focus this Week

PRECIOUS METALS

Gold: June COMEX contracts edged lower despite a weaker dollar as oil prices rose overnight. Axios reported that Iran gave the US a new proposal through Pakistani mediators on reopening the waterway and ending the war, with nuclear negotiations postponed for a later stage. Several central banks are set to meet this and while none are expected to move on rates, focus will center around language and outlook as higher energy prices have fueled speculation of more hawkish policy. However, the Fed is expected to maintain a dovish-tilt, largely thanks to weakness in the labor market, a factor which could provide gold with stronger tailwinds later in the year. For now, higher energy prices are likely to reinforce inflationary fears and weigh on upside potential, absent any changes in the US-Iran conflict.

Price direction in gold continues to take its cues from the oil market, keeping the risk of near-term dollar strength and elevated inflation in focus. Brent crude above $100, stalled peace talks, and US-Iranian restrictions on the Strait of Hormuz are likely to prevent a breakout higher. Persistent uncertainty around the Strait of Hormuz has kept risk sentiment fragile and maintained the dollar’s safe-haven appeal.

Longer-term, Fed easing expectations continue to remain favorable to gold prices over the longer-term, given weakness in the labor market. Longer-run inflation expectations at the time-being are also offering resistance to higher yields as the Fed should remain biased towards policy-easing given the weakness in the labor market. Still, safehaven demand for the dollar remains the largest obstacle to a gain in prices.

Friday’s Commitments of Traders Report showed managed money traders were net sellers of 3,354 contracts of gold for the week ending April 21, reducing their net long to 95,498.

Silver: Silver futures slipped 1.3% to $75.46. For silver, managed money traders were net sellers of 2,184 contracts, reducing their net long to 8,863.

BASE METALS

Copper: Copper prices drifted lower alongside the rise in oil prices. Benchmark three-month copper on the LME is slipped 0.5% to $13,290. Focus this week is likely to center around PMI data out of China on Wednesday as surveys elsewhere have begun to show strains from supply-chain disruptions rising price pressures caused by the US-Iran conflict.

Forecasts expect to see a pullback in the official manufacturing gauge as rising price pressures are likely to negatively impact the headline reading. Business confidence will likely have been weighed down by the war, though improving industrial indicators, including higher utilization rates in cement and steel, should lend support to the manufacturing data. Flash PMIs from elsewhere in Asia showed an uptick in manufacturing in April, but at least part of that was driven by stockpiling due to fears about war-driven supply shortages, and business confidence is dimming as supply chains come under stress.

Elsewhere on the China front, a Politburo later in the week will gain focus from investors. Although officials will likely express increased concern about the global energy shock and geopolitical uncertainties, they may see little urgency for significant stimulus near-term after solid growth in the first quarter.

Zinc: Zinc fell 1.1% to $3,433.

Aluminum: Aluminum dropped 0.1% at $3,587.

Tin: Tin eased 0.1% to $50,300.

Lead: Lead was down 0.9% at $1,944.

Nickel: Nickel 2.3% to $19,540. French miner Eramet said it was planning to halt production at its Weda Bay nickel mine in Indonesia next month. Additionally, fears over sulphuric acid shortages have hit local producers in the country, who have warned that a new ore pricing formula will increase production costs significantly.

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