Central Bank Anticipation Keeps Metal Traders At Bay

Gold was flat and remains directionless in the Asian session and kept to last week’s trading attitude. Gold remained in a fairly tight range over the past 6 session bouncing between gains and losses as the outlook for a Federal Reserve rate increase seems to change day by day, but it is with almost certainty that the Fed will act in September.  Gold is trading at 1093.80 while silver eased a few points to 14.81 and platinum remained flat at 963.60. A strong dollar and expectations that the U.S. Federal Reserve will hike their interest rates by the end of the year triggered selling pressure on gold and took prices to a lowest point since April 2010. Although, the nonfarm payrolls data released last week did not meet market expectations, the overall growth in the US economy will exert downside pressure on gold prices.

In an interview with The Wall Street Journal in June, Federal Reserve governor Jerome Powell said he expected the central bank to begin raising short-term interest rates in September and to increase rates a second time in December of this year. In an interview with CNBC Wednesday, Mr. Powell was noncommittal about whether he would support a Fed move in September as he had earlier stated. Traders continue to recall last week Lockhart’s comments in a Wall Street Journal interview triggered a bout of USD strength, when he hinted at a September rate hike. Prices hovered above the recent 5-1/2 year low on earlier pressure from the dollar as U.S. services sector data revived expectations of a U.S. interest rate rise as early as September.

An increase in rate boosts the dollar, which will put pressure on dollar denominated commodities like bullion. Easing tensions in Greece, upbeat global equities and weak demand from the top consumers India and China also pushed prices into bearish territory.

As per the latest industry report, demand for gold from China has slumped to a lowest level in six years in the second quarter of 2015 as buyers from the country poured funds into distressed equity market. A drop around 25 percent in retail investment and a dip of 23 percent in jewellery demand has reported from the country during the period.

In other metals, lackluster Chinese export data is weighing on industrial and base metals. Copper is flat at 2.327 remaining at a multiyear bottom.  The hope of aggressive action by the government and the central bank to try to reverse the current trend is keeping markets on edge and full of anticipation.  Base metal prices are under deep pressure for the last couple of months on concerns about growing surplus and worries over Chinese economic growth. Traders turned cautious and became the net sellers as a sudden crash in Chinese equities intensified fears that the sentiment may spread overall the economy that likely to hurt demand for base metals from the world’s top consumer of the base metals. A strong dollar too influenced prices as a firm greenback pressurizes the dollar denominated commodities.

Copper in London Metals Exchange has dropped to its lowest level since 2009 last week following weak Chinese factory activity report. Huge production and reports that the global surplus of copper will be doubled during this year is also weighed down prices. Performance of other metals like Nickel, Zinc, Lead and Aluminum was no different. Most of them are trading near their multi year lows. Nickel and Aluminium is trading near April and June 2009 lows respectively while Lead is hovering around the lowest point in seen June 2010 and Zinc is trading near December 2013 levels.