Written Commentary
PRECIOUS METALS
Gold: June COMEX contracts are up 1.6% to $4,634 as the dollar fell and yields moved lower. A slight reprieve in energy prices overnight and the dollar falling, mainly on Japanese yen intervention, are benefiting gold today. Yesterday’s hawkish-hold from the Fed saw markets reprice rate expectations modestly to the upside. While only one member voted against the rate decision, three members voted to remove the easing bias language in the monetary policy statement, a signal that there is growing worry on the board over the rise in inflation and a potential hurdle to future policy-easing this year.
Treasury yields are approaching their local highs reached in late March and alongside a hawkish change in Fed rate expectations, market participants are signaling they are expecting inflation to stay elevated and prevent any sort of downward policy-action from the Fed as evident in one- and two-year inflation swaps. Today’s PCE data was largely ignored by markets, but reinforced expectations of a Fed hold on policy. 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 persistent uncertainty on the Strait of Hormuz are likely to prevent cap gold’s upside until inflation risks ease.
Silver: Silver futures are 2% higher at $73.00.
BASE METALS
Copper: Copper prices rose following upbeat PMI data out of China. Benchmark three-month copper on the LME was up 0.6% at $13,085. China’s manufacturing sector expanded in April at its fastest pace since the end of 2020 thanks to surging new orders, a private survey showed, while copper stocks on the SFHE continue to fall, down 4.6% from last week to 192,025 tons. Refined copper demand in China is now forecast to grow by 2.8% this year, driven by ongoing grid investment and tighter scrap availability. The SHFE is closed from Friday for the Labor Day holiday and will not reopen until May 6. Overall, Chinese manufacturers grew more optimistic about the year-ahead outlook, with sentiment improving from March and running above the average of the past two years. Analysts are not expecting any near-term measures of high-profile monetary easing from the PBOC.
Zinc: Zinc added 1.5% to $3,362.
Aluminum: Aluminum fell 0.2% to $3,480.
Tin: Tin climbed 1.9% to $49,700.
Lead: Lead edged down 0.3% at $1,943.
Nickel: Nickel was up 1% at $19,465. 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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