Gold price hits 6-week high as hedge funds run for cover

Image by Saxo Bank

Large scale speculators in gold futures are scrambling to cover massive short positions – bets that prices will fall – as the price of gold continues to recover from near four-year lows hit last month.

On Monday gold for delivery in June – the most active futures contract – leaped $23.30 or nearly 2% from Thursday's closing price hitting $1,224.20 during lunchtime trade in New York before settling at $1,218.60, a six-week high.

Gold has now rallied some 6% from its 2015 low of $1,148.20 an ounce hit mid-March but is still well below highs above $1,300 reached in January.

Today's strength is on the back of disappointing economic data released on Friday when markets were closed when the US Labor Department reported that the world's largest economy added just 126,000 new jobs in March against expectations of a 245,000 gain and the smallest increase since December 2013.

The turnaround came after eight straight weeks of increasingly bearish positioning to levels last seen December 2013

The news strengthens the hands of Federal Reserve doves – including chair Janet Yellen – who believe any rise in interest rates should happen later rather than sooner so that the labour market could recover fully. The gold price and interest rates have a strong negative correlation. As the metal produces no income, the opportunity costs of holding gold rises in a high-yield environment.

After eight straight weeks of increasingly bearish positioning on the gold market to levels last seen December 2013, large investors like hedge funds or so-called "managed money" last week added 44% to net longs – bets that price will rise.

In the week to March 31 according to the Commodity Futures Trading Commission's weekly Commitment of Traders data, hedge funds slashed short positions by a fifth and at the same time added to long positions in gold.

Silver futures also trended stronger on Monday with May contracts jumping 1.5% to exchange hands at $17.60 an ounce at the close. Like gold, silver went off to the races at the start of the year to hit a 2015 high of $18.36 on January 22 before falling back.

Silver positioning also turned bullish last week with speculators reducing short positions by 25% and adding to longs for a net long position of nearly 150 million ounces.

Like the price of silver, speculation in silver futures tend to be volatile. Hedge funds had to cover a net short position of 53 million ounces in October last year after pushing longs to a record of 234 million ounces only three months earlier.

Sourced :- Frik Els of MINING.com

Copper futures surge 3% on hopes of delayed U.S. rate hike

Copper prices surged on Monday, as weaker than expected U.S. employment data forced investors to recalibrate their assumptions about the future course of the Federal Reserve's monetary policy.

On the Comex division of the New York Mercantile Exchange, copper for May delivery rallied 7.6 cents, or 2.79%, to trade at $2.810 a pound during European morning hours. Prices touched an intraday peak of $2.830, the strongest level since March 26.

Futures were likely to find support at $2.709, the low from April 1, and resistance at $2.868, the high from March 26.

There was no settlement in copper futures on Friday as markets were closed for the start of the Easter holiday. Trading activity is expected to remain light on Monday, with markets in Europe, the U.K., China and Australia all closed for holidays.

The Labor Department reported Friday that the U.S. economy added 126,000 new jobs in March, the smallest increase since December 2013. Economists had forecast jobs growth of 245,000 last month.

The surprisingly weak report added to concerns over the outlook for economic growth after other recent economic data pointed to a slowdown at the start of the year.

A slowing labor market could prompt the Federal Reserve to reconsider a planned increase in interest rates. Last month the Fed indicated that the first rate increase could come as soon as June, but added that continued improvement in labor markets would be a key factor it would consider.

Later in the day, the U.S. Institute of Supply Management is to release data on service sector activity as investors look for further indications on the strength of the economy and the future path of monetary policy.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, traded at 96.87, not far from a seven-day trough of 96.55 hit on Friday.

Elsewhere on the Comex, gold futures for June delivery rallied $20.50, or 1.71%, to trade at $1,221.40 a troy ounce, while silver futures for May delivery soared 50.7 cents, or 3.04% to trade at $17.20 an ounce.

A delay in raising interest rates would be seen as bullish for gold, as it decreases the relative cost of holding on to the metal, which doesn't offer investors any similar guaranteed payout.

What Direction Will Nickel Go ?

Nickel futures prices surged after profit-taking by shorts. SHFE 1507 nickel rallied up by 3.54% to close at 96,160 yuan per tonne, and LME, as of 15:07 Beijing time, traded at $12,920 per tonne, up 1.69%. 

Any further room will be allowed for nickel prices to go up, or nickel prices will track lower again? 

“SHFE nickel will follow the trend in LME nickel market after just being launched, and will get boosted from a rally in SHFE copper in the short term,” an analyst from COFCO Futures told SMM in an interview. 

The long-term outlook is also not bad, the analyst added. 

“I expects nickel prices to keep falling in the coming months, with next key support level around $11,400 per tonne”, Commerzbank’s analyst said. 

“Investors should be very careful of recent price movements, and supply in China’s domestic spot market now remains sufficient, and the round of gains is just price corrections after earlier losses,” an analyst from Guosen Futures said. 

Will Copper Prices Rally in Q2 on Favorable Policies and Arrival of Peak Season

Copper prices extended gains in March helped by stimulus measures rolled out by Chinese government. Prices on Shanghai Futures Exchange registered a 1.98% growth and three-month copper on London Metal Exchange climbed 1.7%.

Will copper consumption pick up significantly in the second quarter – a peak demand season? Are copper prices set for further gains in April?

A majority of futures analysts interviewed by SMM are optimistic about copper prices in this month.

“Output of Chinese copper smelters remains limited, and the low SHFE/LME copper price ratio will leave fewer opportunities for copper importation, so we expect no large oversupply pressure in copper market this month,” analyst from Ever bright Futures said, “besides, the favourable macro conditions will help restore market confidence.”

Analyst from Galaxy Futures agreed with the opinion and told SMM that more pro-growth measures from China and a potential delay of the Fed’s interest rate may lend support to copper prices. In addition, operations at world’s large copper mines have frequently been disrupted lately, leading market to expect real copper supply to fall short of forecast.

“That plus the improving consumption in April, means copper prices will grow further this month, and we expect LME copper to hit $6,600 per tonne and SHFE copper to climb to 46,000 Yuan,” the analyst said.

An analyst from Western Futures added that China’s accelerating investment in infrastructure projects will contribute to stronger copper demand as well, in turn boosting copper prices.

Several analysts, however, are more cautious.

An analyst from Baocheng Futures expressed concerns over China’s growth and a slower recovery in copper consumption.

“Demand for finance-driven copper is still weak,” the analyst explained. “Furthermore, although China set high goals for power investment this year, whether the plan will be materialized remains unknown, and this will add to uncertainty over real copper consumption in power sector.”

Another analyst worried that the continuous growth in copper inventories may block the increase in copper prices.

LME Aluminium price to average $1,840 per mt in 2015: Natixis

The French Bank Natixis in its latest research report forecasts LME Aluminium price to average around $1,840 per mt in 2015. The prices are likely to move higher in 2016 to average around $2,000 per mt.

In its metals review for H1 2015, Natixis forecasts a tug of war between positive and negative factors in aluminium market over the next few years. The bank indicates several positive factors that may favor the aluminium market.

The biggest bullish factor for aluminium is the expected robust demand growth from automotive sector. Also, any shortage of bauxite mat lead to rise in alumina prices. In addition, limited excess supply from China may augur well for the commodity prices in the years to come.

On the other hand, Natixis forecasts excess aluminium inventories to stay at least until 2018, which may lead to further fall in premiums. Also, strengthening dollar may turn out to be a negative factor for aluminium along with other commodities in general.

Natixis also points out a number of upside and downside situations that may have bearing on the above price forecast.

In an upside scenario, acute shortage of bauxite may further tighten alumina supplies. Intervention by Chinese authorities on export rules and adjustment of VAT refunds may limit exports of semi-processed aluminium products out of China. The idling of loss making aluminium smelters across various provinces may limit excess supply. In such a scenario, the aluminium prices may average around $2,000 per mt in 2015 and increase further in 2016 to average around $2,250 per mt in 2016.

A sharp fall in aluminium premiums could make more metal available. Boost in low-cost aluminium production by China and increased Russian output on account of weak ruble may result in more available in the international market. In such a scenario, the average prices are likely to fall to $1,700 per mt in 2015 and 2016, the bank said.

Report: 2016 is start of new gold bull cycle

Disappointing jobs and manufacturing data out of the US coupled with a sagging dollar sent the gold price on a tear Wednesday with the metal surging past the psychologically important $1,200 an ounce level and back into positive territory for the year.

A new report by Metals Focus – Gold Focus 2015 – forecasts a bottom in the price of gold this year with a rising trend in 2016 after three years of declines.

Short term the London-based research firm expects further price weakness in the coming months and a low for the year at $1,080 which would constitute a more than 5-year low. Metals Focus' estimated annual average of $1,190 would mark a 6% decline compared to last year.

The actual start of US interest rate increases will – paradoxically – mark the turning pointing

"The biggest headwind continues to be expectations of US interest rate increases later this year, as other developed economies’ ultra-loose monetary policies (notably the Eurozone’s) remain in place, this helping to drive
up the dollar against other currencies. Low inflation, weak commodity prices and strong equities are other factors that should keep gold under pressure," says Metals Focus in its 88-page review.

The firm also believes that the actual start of US interest rate increases will – paradoxically – temper the pressure that expectations of a rise had placed on the price and mark the turning pointing.

Shortly after the  first Fed action in six years gold will start appreciating according to the report which is "premised on our expectation that these increases will be slow and modest, leaving real rates in negative territory for some time to come."

From 2016 onwards, there are several plausible arguments to be made to provide the spark for a renewed gold bull market according to the report:

While Western investor interest in gold remains low, selling pressure is likely to ease further from the already much-reduced level of liquidations seen in 2014.

Meanwhile, Asian investment demand for physical gold is expected to recover from last year’s slump. In addition potentially gold-friendly developments in debt, inflation, foreign exchange, commodity and equity markets and the scope for a far more malign environment for international relations should also boost the price.

Sourced :- Frik Els of MINING.com

Gold price leaps past $1,200 on safe haven buying

Amid nervousness on US bond and equity markets which are back in negative territory for the year and a spike in oil prices sparked by chaos in the Middle East gold leaped past the psychologically important $1,200 an ounce level on Thursday.

Gold for delivery in June – the most active futures contract – gained $21.76 or 1.8% hitting a high of $1,219.76 early on, before pulling back in early afternoon trade in New York to around $1,206 an ounce, still a three-week high.

The gold price is up more than 6% after dropping to a 2015 low of $1,148.20 an ounce last week and has now retraced almost 40% of its losses since the 2015 high above $1,300 reached in January.

Nervous investors piled into gold following a second day of sharp gains for the oil price to above $50 a barrel after top producer Saudi-Arabia launched airstrikes in Yemen against Iranian-backed militias that have taken over large swathes of the country.

With Egypt being drawn into the conflict on the Arabian Peninsula, the prospects for another protracted ground war in the region becomes more likely.

Gold also received support from a weaker dollar in early trade, but the greenback reversed course later in the day to within shouting distance of fresh 12-year highs. Gold and the dollar usually move in opposite directions.

The US Dollar Index is up 21% compared to this time last year and the past year has been the greenback's strongest run on a rolling 12-month period since 1973.

A new report by the World Gold Council that examines the complex relationship between the gold price and the world's reserve currency showed gold prices rise twice as much during weak dollar periods than they fall when the dollar strengthens.

Given that many analysts believe the dollar rally may be entering the final stretch, gyrations in the value of the currency could set up the gold price for a period of substantial upside.