Copper Hit By Strong Dollar And Lackluster Chinese Demand

Gold reversed losses this morning to trade at 1281.35 seeing a gain of $9 while silver added 83 points to 17.41. Platinum continued to trade in the green moving to 1068.45 with gains of close to $4. There was a bevy of Federal Reserve speaker over the days which helped the dollar rebound but did little to effect precious metals. The moves in the Asian session are traders taking position ahead of the US jobs data due later in the day. The nonfarm payroll report always sparks moves in gold and the US dollar.

Oil prices moved significantly higher in Europe with WTI pushing to highs near $46.0 p/b before correcting slightly. There were concerns that wildfires in Canada’s Alberta province would disrupt oil production. As oil prices moved higher, there was renewed support for gold and a move to near $1.285.

The latest US jobless claims data was weaker than expected with an increase to 274,000 in the latest week from 257,000 previously and an expected 261,000. Although still strong in historic terms, the data reinforced doubts over Friday’s employment report triggered by a weaker than expected ADP reading. The dollar initially weakened from its best levels after the data, especially against the yen, which helped support gold prices.

Investor interest in gold remained strong with a further increase in assets of the SPDR Gold Trust to the highest level in two years according to latest data, although their resolve could be tested if prices move significantly lower. (Economics Calendar)

The biggest moves this morning was in industrial metals which seem to be recovering from some of Thursday’s losses as the US dollar weighed heavily on commodities.  Copper gained 6 points to 2.151. Goldman’s bearish outlook hinges in part on expectations that the Fed will raise interest rates three times this year, compared with Citigroup’s expectations for two increases, at most. Higher borrowing costs will lead to a stronger dollar, putting downward pressure on gold and copper, Goldman said in a report April 22.

Recent commodity gains have been driven by short-term, transient supply adjustments that don’t solve longer-term surpluses, particularly in oil and steel, Goldman said. The bank forecasts West Texas Intermediate crude oil will drop to $40 in three months, before rebounding to $60 in the next 12 months. Futures traded at 44.84 a barrel Thursday on the New York Mercantile Exchange.

Morgan Stanley analysts including Adam Longson are also negative on energy, saying in an April 25 report that “a macro unwind could cause severe selling” with the fundamentals worsening for oil. Iraq’s exports approached a record high in April, while US inventories are at the highest since 1929.

For now, investors are betting with Citigroup. Since mid-March, hedge funds and other money managers have more than tripled their combined net-long holdings across 18 commodities to 1.09 million futures and options contracts, US government data show.

Copper has taken a hit since China’s largest copper producer, Jiangxi, said earlier this week that the country’s output cuts have been offset by new capacity. China’s major smelters announced last year when copper prices were low that they would cut refined output to help balance the market. Now, new supply could mitigate the positive impacts of these supply cuts.

Copper prices rallied earlier this year on a weakening U.S. currency and some renewed faith in the health of China’s economy. While the price increase was welcomed by copper producers, copper analysts met the increase in prices with disbelief. China is the world’s top copper consumer and, while  data showed an improvement in the country’s economy, it was not enough to suggest that the country would return to the economic growth necessary to drive-up copper demand and prices. Copper prices were also positively impacted by China’s seasonal stockpiling, but that will wrap up soon, and in the aftermath copper futures could see another sell-off.