Gold gains amid speculation the Fed may pause

By Daniel Hynes

A weak macro-economic backdrop weighed on sentiment. This was offset by hopes that central banks may be done raising rates and ongoing supply side issues.

Gold rallied amid speculation the Federal Reserve may pause its interest rate hikes. US job openings fell more than expected in July, while a separate report showed a bigger-than-expected decline in consumer confidence. This saw bond yields fall and the USD weaken as the market lowered its bets on a hike in rates at the September meeting.

Base metals were mixed amid the uncertain economic outlook. However, reports of additional support measures in China helped push copper higher. The country’s largest banks are preparing to cut interest rates on existing mortgages and deposits, according to a report by Bloomberg. Copper also received a boost from further drawdowns in inventories. They have recently fallen to a one-year low in China, including off-exchange metal in bonded warehouses. Strong demand from clean energy technology sectors continues to drive tightness in the market, in particular a surge in renewable energy capacity.

Iron ore inched higher despite the negative headlines around the property sector in China. Sentiment was boosted by comments from BHP that it’s seeing solid demand from other sectors such as infrastructure, power machinery, autos and shipping. Spending growth on railways is running at 25% y/y in the first seven months of the year, while auto output is up 12% over the same period.

The risk of supply disruptions in Australia remaining high failed to extend the recent rally in European gas. Unions representing workers at the Gorgon and Wheatstone LNG export facilities gave notice that industrial action could begin as soon as 7 September. The two LNG export plants present approximately 6% of global supply. Traders may have been comforted by the possibility that strikes may not immediately affect production. Workers are only expected to strike for around 11 hours a day amid a series of rolling stoppages. In the meantime, they will continue to negotiate with Chevron on a new deal in the lead up to the deadline. North Asian LNG spot prices were also steady with importers refraining from boost procurement despite the risk to disruption.

Crude oil gained amid a broader risk on tone across markets as the prospects of further rate hikes eased. The physical markets also continue to show signs of tightness. Stockpiles at the key storage hub of Cushing, Oklahoma have declined to their lowest level since January. Refined products are also trading at large premiums to crude as the US tropical storm season picks up. Gains were also tempered by signs of rising Russian supplies. Exports reached an eight-week high of 3.4mb/d in the week to 27 August, according to tanker-tracker data from Bloomberg.

Data source: Commodities Wrap