Gold rose 0.5% to above $1,770 an ounce on Tuesday amid a general dollar weakness and as U.S. benchmark yields paused their ascent. The U.S. dollar index fell 0.2% against a basket of currencies, weighed down by weak U.S. factory data and wagers of faster monetary policy normalization in other countries, while the U.S. government 10 year bond yield paused its recent rally and settled around 1.577%. A rising dollar makes gold cheaper in other currencies and lower yields reduce the non-interest bearing bullion’s opportunity cost.
Silver prices bounced back above $23 per troy ounce, the highest in near 4 weeks, and tracking gains in gold and other precious metals as long-lasting inflation poses a threat to the global economy. Prices paid by American consumers rose in September by more than expected, marking the sixth consecutive month of hot inflation. As a consequence, Federal Reserve officials are likely to agree on tapering next month as shown in the latest FOMC minutes. The white metal reached an 8-year peak of $30/oz in February on prospects that a global shift towards green technologies, such as solar panel production, would boost demand, but has since declined more than 20% amid reduced industrial demand and expectations of higher interest rates.
Copper futures extended gains towards $4.8 per pound, getting closer to a record high of $4.9 hit in May, on the back of a weaker dollar and shrinking global inventory levels, as historically high energy prices hurt production. The copper market London Metal Exchange spot prices have been trading at an over $1,000 premium over 3-month futures, the widest spread since 1994, a sign that current supplies are failing to meet demand. Meanwhile, freely available stockpiles have shrunk by more than 90% over the last couple of months and sit near multi-decade lows in LME-monitored warehouses, a trend also seen in Chinese and American inventories. Adding to concerns, a Peruvian community will block a key road in a major copper mine in Peru, the world’s 2nd largest producer, after failed negotiations with the government.
Shanghai steel futures prices continued to tumble to around CNY 5,600 a tone, a level not seen in roughly a month, amid mounting demand concerns from the Chinese real estate industry, which accounts for a quarter of domestic steel demand. Property developers have been hit by a series of credit-rating downgrades as a recent slump in new-home sales further enhanced investors’ jitters about the sector’s debt, while Evergrande continued to miss on interest payments to dollar-denominated bonds. Earlier in the month, steel futures hit a 5-month high of CNY 5,925 after authorities forced strict output curbs at Chinese steel mills, while prices of coal, a key input, soared to record highs.