Written Commentary
PRECIOUS METALS
Gold: December gold contracts fell lower in the wake of July’s PCE data, which showed the headline figure rise 0.2% MoM after falling 0.1% in June, pushing the 12-month rate to 3.7%. Core PCE rose 0.2% MoM at 3.3% YoY reaffirming still-firm inflationary pressures. While real consumer spending was flat, real disposable income continued to rise, limiting evidence of a material deterioration in household demand. The combination of subdued real activity and sticky inflation should keep policy easing constrained and supports a hawkish market reaction. The second estimate GDP figures leaves headline output growth unchanged at a moderate 1.5% annualized rate, but the details are inflationary: 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 40% 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 0.43% to $68.39.
BASE METALS
Copper: Copper prices on the LME dipped 0.1% in official activity to $14,335, while COMEX prices are down 0.57% $6.67. SHFE copper rose 0.6% to 108,750 yuan/$16,182. A stronger dollar in the wake of July’s PCE data is weighing on the metal, though underlying fundamentals of falling 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 climbed by 17%. 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 rose 1.1% to $3,932. Zinc prices have extended gains for six-straight sessions, hitting its highest level in more than four years on supply worries and speculative buying.
Aluminum: Aluminum was flat at $3,238.
Tin: Tin shed 0.7% to $55,450.
Lead: Lead held steady at $1,905.
Nickel: Nickel was weaker at $17,040.
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