Gold price firmer on pick-up in Middle East tensions 

• Chinese equities circuit breakers kick-in after 7 percent fall in the CSI

Precious metals are mixed with gold and silver prices up around 0.9 percent with the gold price at $1,070, while the industrial precious metals are weaker with platinum prices off 0.6 percent and palladium down 1.9 percent.

The base metals have started the year weak on the back of poor Chinese PMI data and on a pick-up in tensions between Iran and Saudi Arabia. Base metals prices are down an average of 1.6 percent today, led by a three percent fall in nickel, while lead and zinc are down 1.8 percent and copper is off one percent at $4,645. Oil prices are up around 1.4 percent, with Brent crude at around $38, which may well help cushion falls in industrial metals.

In Shanghai, the base metals are down an average of 1.2 percent so have not been overly affected by the rout in equities today. Nickel leads the decline with a 1.8 percent fall, while copper is down 1.3 percent at Rmb 36,120. Lead is the only one in positive territory, it is up 0.3 percent. Spot copper in Changjiang is down 1.2 percent at Rmb 36,150-36,250, the backwardation with the futures is at an equivalent of $23 per tonne, while the LME/Shanghai copper arb window is open with the arb ratio at 7.78.

In other commodities in China, gold is up 0.8 percent, silver is up 0.1 percent, steel rebar is up 0.2 percent, while iron ore prices eased 0.5 percent to Rmb 323 and oil prices are firmer, last at $37.90.

In equities there was profit-taking on December 31 with the Dow closing down one percent, but poor Chinese PMI data out over the New Year holiday and again this morning have sent jitters through Chinese equities with the CSI off 7 percent, the Nikkei is down 3.1 percent, the Hang Seng is off 2.5 percent, the Kospi is down 2.2 percent and the ASX 200 is down 0.5 percent.

Currencies – the dollar index is at 98.60 in recent days it has been edging higher, but is weaker intraday today, which is surprising given the pick-up in geopolitical tensions. The euro is edging higher this morning, last at 1.0889, sterling is weak at 1.473, as is euro sterling at 0.7387, the aussie is weaker at 0.7207, while the yen seems to be the currency picking-up the safe-haven trade as it has strengthened to 119.40.

Emerging market (EM) currencies are weak – the yuan has set a fresh multi-year low at 6.6161, its post devaluation low was 6.5943. The rouble is last at 72.70, the rupiah, rupee, the rand and ringgit are all on a back footing, while the real is flat. The weakness in EM currencies is a potential alarm bell for markets, as is the sell-off in Chinese equities.

The economic data already out showed China’s Caixin manufacturing PMI dropped to 48.2 from 48.6, the fifth month of decline while Japan’s manufacturing PMI edged up to 52.6 from 52.5. Data out later includes German CPI, manufacturing PMI out across Europe and the US, UK borrowing data, US construction spending and ISM manufacturing prices – see table below for more details.

The weak start to trading in 2016 does not bode well, especially the continuing weak Chinese PMI data, with weakness in China last year one of the main drags on metal prices. The pick-up in Middle East tensions will also be closely watched, especially with oil prices at low levels, any rebound in oil could end-up helping to underpin metal prices as energy costs are such a key cost of production for metal producers. Ahead of year-end the metals were edging higher, but that may have been driven by end-of year short-covering, so the combination of an end to that, plus signs of continuing weakness in China’s manufacturing could well lead to prices testing support levels.

The precious metals were generally consolidating, or base building, ahead of year-end, the pick-up in Middle East tensions may well give the gold price a lift, while industrial metals may well follow the base metals lower.

Source: BullinoDesk – Gold price firmer on pick-up in Middle East tensions

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