Gold crash isn’t over — prices near five-year lows

Gold prices continued its downward spiral Tuesday trading close to their lowest level in five years amid rising expectations the U.S. Federal Reserve will hike interest rates later this year.

The precious metal dipped down the $1,100 an ounce-mark in early Asia hours, but came back up above that level on bargain hunting.

Prices were just modestly lower in early U.S. trading Tuesday, changing hands at $1,105.10 an ounce at 9:15 am ET.

On Monday, prices dropped down to $1,080.00 an ounce, the lowest since March 2010, causing a stock blood bath among gold miners.

Brokers and market analysts are speculating that at least one major fund took advantage of the thin market to push the gold price through a support level on the charts

Brokers and market analysts are speculating that at least one major fund took advantage of the thin market to push the gold price through a support level on the charts, possibly because they had already sold gold short.

They said the sudden collapse bore similarities to “bear raids” by Chinese funds in copper in January, which drove red metal prices down to a six-year low.

“There is to my mind no coincidence that this happened in the quietest, thinnest period of the week,” David Govett, head of precious metals at Marex Spectron in London, told Financial Times.

“Anyone who trades gold knows not to put any volume into the market at this time, unless they deliberately want to move it in a big way,” Govett added.

Kitco’s analyst Jim Wyckoff says that a sustained drop below the $1,100 mark “would then open the door to still lower prices, with an ultimate downside objective being the 2008 low of $681.00.” And he illustrates his point with the following chart.

Monday's price dip dragged gold companies stocks down to historical lows:

• Barrick Gold (NYSE:ABX, TSE:ABX), the world's top producer of the metal, sank 16% to $9.58 (Canadian) in the Toronto Exchange, the lowest price in 26 years.
• Goldcorp (NYSE:GG)(TSE:G), the world’s biggest gold miner by market value, and Eldorado Gold (TSE:ELD) (NYSE:EGO) both hit their lowest in a decade.
• Kinross Gold (TSE:K) (NYSE:KGC) declined to $2.21, its weakest level since 2001.
• Newmont Mining (NYSE:NEM), another large gold producers, fell 11.4% to around $18.33, the lowest in seven months. It was the biggest loser on the S&P 500.

Gold prices have been steadily falling since a peak of $1,900 an ounce in September 2011.

Why Aluminum prices to drop in July?

Aluminum prices, though rebounding from six-year low thanks to China’s efforts to stabilize plummeting stock market, still face downward pressure from poor market fundamentals, enanchu.com predicts. 

Expansions of low-cost new capacity are exacerbating already oversupplied market. For example, Xinjiang Qiya Aluminum just put online 250,000-tpy capacity, which will bring its total operational capacity up to 850,000-tpy by the end of July. 

Xinjiang East Hope is in the process of commissioning its 900,000-tpy new project. More capacities might enter operations once aluminum prices become attractive. Small-scale production cuts have been reported in Henan, but these are just a tip of the iceberg in relation to overwhelming capacity in operation.  

Aluminum demand has taken a hit by sluggish housing market and falling automobile production and sales. The situation will worsen as the off-season deepens. 

Aluminum costs fell this year, thanks to growing use of captive power, preferential power tariffs offered by local government, as well as lower coal and alumina prices. This will act as another drag on aluminum prices.

Source: SMM

Will LME Nickel continue to outperform base metal complex?

LME nickel overnight closed up 1.05% at $11,580 per ton as other base metals largely finished lower against a strong dollar. Will this continue into the last trading day of the week? 

“Weak demand and a strong dollar will cap gains in the nickel market, and short bets are advised to be built, with stop-loss order at 84,000 yuan for September delivery nickel on the SHFE,” an analyst told SMM in an interview. 

Another analyst from Chaos Ternary Futures expected wide trade in nickel market, with prices between 81,000-89,000 yuan per ton.

In other news, LME nickel inventories fell to 452, 850 as of Jul. 16, down 630 tons from a day earlier. The same day, Jinchuan Group announced to cut its ex-works prices after raising for second consecutive days.

LME Zinc price may advance to near $2,100 a ton mark next week

LME zinc prices are expected to point toward $ 2,100 next week, moving between $ 2,050-2,120 per ton, SMM zinc analyst predicts.

"Zinc prices appear to be more resistant to declines among other base metals, and investor confidence will improve after some mines lowered domestic zinc concentrate TCs due to tight supply in South China”, SMM zinc analyst explains. A technical indicator also shows significant support to LME zinc price.

But a strong US dollar will constrain some price gains, SMM added.

In China, September-delivery zinc contracts on the SHFE will consolidate support from the 5-day moving average, fluctuating in the 15,500-16,000 yuan per ton range. SHFE zinc price will underperform LME zinc with the lack of market confidence from soft domestic demand.

Spot price in Shanghai will trade 0-60 yuan per ton below SHFE zinc contracts for September delivery.

Supply grew recently as smelters increased sales with rising zinc price. A narrowing price gap between Shanghai and Tianjin will also drive more shipments to Shanghai. Purchases will be sluggish, though. 

Traders will be reticent toward goods releases after delivery, and downstream buying interest will be also weak, allowing spot discounts to expand.

Nickel prospects likely to improve in H2 2015

According to the third quarter commodity outlook report released by Deutsche Bank, the nickel market looks poised to improve significantly during second half of the current year. Incidentally, LME Nickel prices had touched six-year low on Tuesday, dropping to sub-$11,000 per mt level.

The research note states that the firm is confident on the prospects of nickel market and that it maintains a positive outlook on nickel market, going forward.

The Chinese unwrought non-alloyed nickel imports surged higher during the month of May this year, rising 127% year-on-year to 23,146 mt, said most recent data released by the country’s General Administration of Customs. The imports had totaled only 5,613 mt and 18,220 mt during the months of March and April respectively. This indicates that refined nickel import market has more or less returned to normalcy. On the other hand, a portion of these imports are assumed to be from Russia ahead of SHFE approval of Russian nickel deliveries.

Sources indicate that Norilsk Nickel has registered three bands- NORILSK COMBINE H-1, SEVERONICKEL COMBINE H-1, and SEVERONICKEL COMBINE H-1Y for physical delivery on the exchange.

The sharp rise in ferronickel imports by China during the month of May this year is also considered as a positive trigger for nickel market. The imports of ferronickel surged higher by 247% year-on-year to 61,551 mt. However, the imports were down when matched with the imports of 75,154 mt in April. The cumulative imports during the initial five-month period of the year were up by 110%.

Meantime, Shanghai nickel premiums continue to remain at high levels, indicating supply tightness in physical market. The tightening stainless steel scrap availability in Europe is also considered to favor nickel market, as stainless steel market accounts for nearly one-third of the global nickel consumption.

According to Deutsche Bank, annual Nickel prices are likely to touch $14,520/mt in 2015.

Chinese Zinc concentrate TCs to rise on growing supply

TCs for domestic zinc concentrate will rise on growing supply.

"Zinc concentrate imports are expected grow on increasing margins”, zinc analyst explains.

Profit from imported zinc concentrate increased 170 yuan to 520 yuan per ton (zinc content) above those from domestic concentrate this past week.

Recent rainstorms in Hunan and Guangxi have little impact on local mines due to suspension across SMEs from environmental protection inspections and stable production at large mines. Some mines were reluctant to sell on continuously falling zinc prices.

This week, TCs for imported zinc concentrate (50%) were $ 210-220 per dry metric ton (DMT), while those for domestic zinc concentrate (50%) were 5,300-5,500 yuan per ton (zinc content).

Source: Shanghai Metals Market

Will Copper Break below the January Trough?

Weak demand, declining trading activities and China’s poor data are pushing copper prices towards a low last seen in mid-January.

What’s next? Is the red metal falling below the January trough?

“Copper price dropped to a low never seen since 2009 in January, but this may not be the bottom for 2015 if you look at the data for construction,” said analyst of Everbright Futures.

The analyst explained that although home sales picked up, housing starts remained weak, presaging poor copper demand in the latter half of the year.

“Falling fixed asset investment means the economic growth will be less dependent on investment, which is certainly bad news for copper market,” analyst from Guotai Junan Futures told SMM.

Image Source: fastmarkets.com