GOLD SHINE AMID METAL CORRECTION
Spot gold bounced back to the $1,800 a troy ounce on Thursday, close to a 6-week high of $1,807 hit earlier this week, as traders digested a batch of economic data and interest rate decisions from major central banks. The US economy grew an annualized 2% in Q3, missing market expectations by 0.7 percentage points and slowing sharply from the 6.7% jump of the previous quarter, as high inflation curbed demand and soaring COVID-19 infections among the unvaccinated worsened labor shortages. On the other hand, initial jobless claims fell more than expected to a seasonally adjusted 281 thousand last week, a new pandemic low. Elsewhere, the European Central Bank pledged to continue with the pandemic-era asset purchases program until at least March 2022 and left its rate hike outlook unchanged, even as the Eurozone economy is faced with multi-year high inflation rates.
Silver prices slipped to below $24 per troy ounce from a 7-week high of $24.6 hit on October 25th, amid a tick-up in US Treasury yields as investors brace for a hawkish shift in the Federal Reserve monetary policy. The Bank of Japan is expected to hold ultra-accommodative stance and lower its 2021 inflation forecast, contrasting with its international counterparts. Meanwhile, the European Central Bank has been facing rising inflation rates as it tries to stick to its dovish stance and avoid an interest rate hike before 2024 but market sentiment is weighing in the risk of a sooner rate hike. Meanwhile, the Federal Reserve’s monetary policy decision on November 3rd could mark the beginning of the unwinding of its $120 billion monthly bond purchases.
Copper futures extended losses to below $4.5 per pound, the lowest in near two weeks and slightly below a record high of $4.9 hit in May, as on-warrant copper stockpiles in LME warehouses recovered. On October 14th, the LMI stocks hit 14,150 tonne, the lowest since 1998-low sparking supply concerns and pushing cash LME premiums to a record high over the three-month contract. As a result, the London Metal Exchange took actions to maintain an orderly market including changing its lending guidance rules, limiting the backwardation and allowing deferred delivery of some positions.
Iron ore with 63.5% iron content for delivery in Tianjin traded below the $120 per metric tonne level after briefly touching one-month highs of $129 in mid-October. The debt crisis faced by Chinese property firms remains a threat to industrial metals and the power shortage in China is likely to continue into winter while production curbs in the country are already hurting companies and households. According to reports, more than 80% of China’s domestic steel mills have suspended operations for maintenance in September.
Shanghai steel futures extended losses to CNY 4,600 a tonne in late October, the lowest since mid-March, amid government intervention to cool commodity prices, output controls and weaker demand. The National Development and Reform Commission of China met with key coal producers to further discuss price intervention and investors wonder if the authorities will introduce a cap on commodity prices. At the same time, fresh economic data from China point to an economic slowdown while the construction sector, which accounts for a quarter of domestic steel demand, remains depressed due to property crisis. Also, steel prices are roughly 22% below a record-high of 5,975 hit on May 11th, with output controls weighing as Beijing aims to cut carbon emissions, urging producers to lower steel capacity, improve recycling rates of steel scrap, and promote electric arc furnaces technologies.
