Metals responding well to trade war escalation Metals responding well to trade war escalation Metals responding well to trade war escalation

Metals responding well to trade war escalation

Commodities 10 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  Today's Washington-led escalation of the Sino-US trade war surprisingly attracted a limited reaction from global markets with Chinese stocks trading higher on the day with the yuan being close to unchanged.


Today’s main news event has been the announcement from the US that it will impose a 10% tariff on about $200 billion in Chinese goods from next week. In addition, President Trump said that any retaliation from China would lead to additional tariffs on about $267 billion in goods. This escalation of the trade war surprisingly attracted a limited reaction from global markets with Chinese shares trading higher on the day and CNY nearly unchanged.

Gold took the tariff news on the chin while maintaining its relative tight trading range around $1,200/oz. It has been doing this for the past month, during which time it has managed to absorb continued selling from leveraged funds and exchange-traded funds. 
Funds positioning

The combination of this latest move by the US having been flagged well in advance and news from China that it plans to increase infrastructure spending to offset the negative growth implications helped settle a few nerves. While gold remains stuck due to the limited reaction in bonds, stocks and not least the dollar, we have seen industrial metals, including platinum move higher. 

HG copper (+2%) is close to challenging the recent high at $2.72/lb with the potential for increased spending from the world’s largest consumer helping reduce some of the trade war angst that has kept it under pressure since July. 

HG Copper
Source: Saxo Bank

Platinum (1.6%) has seen its record discount to gold contract to a five-week low. Since April it tested a $420/oz record discount to gold on a couple of occasions; the move higher today has reduced the discount to $390/oz and the spread is currently challenging the downtrend from early 2017.

Silver, meanwhile, has struggled to catch a bid despite its semi-industrial credentials. It continues to hover just above the important $14/oz level while trading close to a multi-decade low against gold, as seen through the gold-silver ratio, currently at 84.70. 

Gold, silver, and copper

All of the four major metals covered by the Commitments of Traders report have been under pressure since the trade war broke out back in June. In order for silver to move higher, it needs gold to catch a bid thereby potentially starting to challenge the bearish conviction currently held by hedge funds. 

COMEX Metals

Gold as mentioned remains stuck in a relatively tight range around $1,200/oz. and would need a weaker dollar and potentially also weaker stocks before challenging those holding a negative price view. The FOMC meeting on September 26 is widely expected to yield another rate hike and should have a limited impact on gold. More importantly, and more challenging, is a renewed rally in 10-year US real yields which have climbed to 0.9%, a near four-month high. 

A break above $1,214/oz and probably also $1,220/oz is needed before potentially seeing short-covering carrying it higher. Until such time we maintain a neutral view on gold with silver and platinum potentially providing a better opportunity given the aforementioned relative and absolute cheapness. 

XAUUSD
Source: Saxo Bank

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.