An action-packed week, the global financial and commodity markets witnessed a series of surprise moves not the least of which was the ECB cutting the refinance rate 25 basis points.
Payrolls in the US surprised unambiguously strongly by rising more than forecast in October when the Labour department said 204,000 workers were added last month, markedly higher than the forecast 120,000. The dollar gained on the ECB rate cut.
Despite all these, investor attention is still riveted on the timing of the US Fed tapering. The positive jobs data and improvement in growth outlook have once again raised the possibility of monetary policy tightening sooner than expected until recently.
Simply, put, tapering could begin as early as December 2013 rather than in March 2014.
As a result, gold suffered the most last week. Prices fell sharply on Friday in the London market. Over the week, all metals were generally down.
Among precious metals, gold suffered the worst with a fall of 1.6 per cent, while silver and platinum edged lower. Palladium bucked the price trend to move up 2.7 per cent week-on-week.
Among base metals, nickel was the worst performer with a price decline of 4.6 per cent while lead, zinc and aluminium were down 2.0, 1.8 and 1.6 per cent respectively. Copper was down 1 per cent while tin was nearly unchanged. Oil WTI was down 0.6 per cent.
Gold slips
The dollar has strengthened and the equity markets have firmed. Physical demand is still weaker than usual while investor interest has turned fickle. ETP outflows in October were more than inflows.
With many of the support factors knocked out, the precious metal quickly surrendered its gains last week to fall below the psychological $1,300 an ounce level in London Friday last.
With the prospect of a Fed tapering as early as December now gaining wider acceptance, ‘the risks are skewed to the downside for gold over the reminder of the year unless the physical market bounces back and investors return to the forefront,’ commented an expert.
In London, on Friday, gold PM Fix was $1,286/oz, down from the previous day’s $1,307. Silver edged lower with Friday AM Fix of $21.70 versus the previous day’s $21.75. Platinum too fell on Friday to $1,446 ($1,453) with the premium over gold moving up to $150. Palladium was nearly the same at $757.
In India, the seasonal demand is weaker than usual. Anecdotal reports suggest tepid consumer interest in jewellery purchase. Demand in China has slowed down too, although moving closer to the Chinese New Year may bring about some buying interest.
Metals – mixed bag
On Friday, LME cash aluminium closed at $1,771 a tonne, copper at $7,166, nickel $13,852 and zinc $1,873.
Data from International Lead and Zinc Study Group show that global zinc mine production growth is trending lower and is flat year-on-year to August 2013.
This is seen as the beginning of the slowdown in mine production which creates reason to be bullish on a 12-month view of zinc. By mid-2014, zinc prices could move higher.
In base metals, the LME decision to proceed with a new warehouse policy in April 2014 could introduce more volatility in the front-end time spreads, particularly for aluminium, analysts have pointed out.
The technical picture suggests, copper momentum to be neutral. Resistance is seen at 7,300 and 7,200 while support may be available at 7,080 and then 7,020.
Nickel has downside toward 13,800/650 and there will be bearish pressure while beneath 14,200.