Gold held down by yuan, yields
Head of Commodity Strategy
Summary: While semi-industrial and industrial metals continue to show signs of recovering, the same can not be said about gold with the yellow metal glued to a tight range around $1,200/oz.
While semi-industrial and industrial metals alike continue to show signs of recovering, the same can not be said about gold. During the past month, traders have increasingly been struggling to find the right direction and a tight range has emerged during this time with gold glued to the $1,200/oz level, having closed within $2/oz on more than half of those days.
Industrial metals as seen through copper recovered strongly last week when China promised tax cuts and increased spending in response to the escalating trade war. Such an announcement from the worlds biggest consumer of metals was then backed up by news that Chile’s state owned Codelco, the world’s biggest producer, was seeing rising demand and limited supply.
Following last week's strong recovery, HG Copper is now facing a band of resistance between $2.87 and $2.97/lb, the equivalent of $6,400 and $6,600/MT on LME Copper.
The tailwind from industrial metals has allowed both silver and platinum to recover both in real terms and relatively against gold. The gold-silver ratio has fallen to a three-week low, and is now below 83 from a 10-year high above 85. Platinum, meanwhile, has outperformed gold by more than $50/oz since July 2 and is currently trading at $370/oz, a six-month low.
With silver and platinum showing signs of life, the lack of movement in gold speaks volumes about its continued attachment to the Chinese yuan, and about the renewed rise in bond yields to a certain extent as well.
While the dollar has shown some gold-supportive signs of topping out over the past week, not least against the euro, the yuan remains weak. In fact, today saw the onshore yuan decline for a third session after the People's Bank of China set the daily fixing at 6.8571, the weakest level since August 24. This could indicate that the PBoC, instead of having drawn a line in the sand, is only managing the movements in order to avoid a sharp decline.
In addition, the latest run up in US bond yields, both notional and real, ahead of today’s Federal Open Market Committee meeting has also weighed on sentiment. The rise back above 3% in 10-year notes and the lack of movement in inflation expectations (breakeven) allowed the 10-year real yield to reach a seven-year high at 0.95% earlier this week.
With the market putting the risk of a third 2018 rate hike close to 100%, the focus will instead be on the forward guidance from the FOMC with regard to future rate hike expectations.
Until such time, the yellow metal remains stuck with better opportunities potentially presenting themselves in the other metals.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)