Metals Range Trading With No Outlook

Gold is trading flat this morning after a mini rally on Tuesday and is trading at 1176.10. Silver broke under the $16 support level to trade at 15.953. Platinum found support at its support level at 1106.95. Gold prices were higher Tuesday in New York, as weakness in global equities helped the metal extend a rebound from a mid-March low.

Gold on Tuesday was inching its way back to the $1,200 an ounce, a level it hasn’t strayed too far from for the better part of three months.

A new research note by Capital Economics suggests official sector buying can take much of the credit for establishing something of a price floor for the metal this year. During the first quarter this year, the World Gold Council estimates that 120 tonnes of gold were added to global central bank reserves.

Central banks have upped their share of overall gold demand from around 2% in 2010 to as much as 14% last year and in 2013. Just to up gold as a share of forex reserves to 5% central banks in emerging economies need to buy 8,000 tonnes. Capital expects this trend to strengthen adding that “any emerging market central bank looking to reduce exposure to the dollar still has few credible alternatives to gold”.

Gold was holding steady above an 11-week low this morning, helped by a softer dollar, but gains were limited as investors worried over a looming US interest rate increase and outflows from bullion-backed funds continued.  The dollar was nursing losses but that was not enough to push up gold significantly as investors continued to pull money from funds.

Holdings in SPDR Gold Trust, the top gold-backed exchange-traded fund (ETF), fell 0.42 per cent to 705.72 tonnes on Tuesday, the lowest since January.

Physical demand is not providing much support for gold. Expectations of a further drop in bullion and better returns from surging equities in China have tamed demand for the precious metal in Asia.

Friday’s drop to an 11-week low failed to draw much interest in the world’s top two buyers, equities-obsessed China and India, where worries about a poor monsoon and lack of wedding demand are holding demand down. Traders were also waiting for US retail sales data due on Thursday for clues about the strength of the economy and how that will affect the Federal Reserve’s monetary policy.

Strong data could prompt the Fed to raise rates as soon as September, which could hit demand for non-yielding bullion.

Copper is trading at 2.721 up by 7 points as traders hope for additional stimulus from China after lackluster inflation data on Tuesday.  Another factor that has contributed to the recovery in copper prices are supply side constraints, with several companies abandoning or deferring new projects, which has raised expectations of future copper prices. Copper prices have been boosted by expectations of the tightening of copper supply. As a result of the prevailing weakness in prices over the course of the last year, large copper mining companies have put on hold several new projects. In addition, given the adverse pricing environment, funding has become hard to come by, especially for smaller copper mining companies.