AfkInsider Commodities Report: Riding The Gold Roller Coaster

AfkInsider Commodities Report: Riding The Gold Roller Coaster

Some bullishness returned to the gold market this week with the yellow metal breaking through $1,300 an ounce for the first time in five weeks.

Gold was boosted by expectations of more demand from China as well and decline in the U.S. dollar, but it was something of a roller-coaster ride. Gold for August delivery first climbed $43.10 to $1,336 an ounce on the Comex division of Nymex July 22 – its largest one-day gain since June 29, 2012. Just two days later, prices fell sharply after the release of data showing U.S. home sales in June were their highest in more than five years.  The yellow metal for August delivery on Comex dropped to settle at $1,319.70 an ounce on July 24, before rebounding a tad – to $1,325 – in early trading on July 25. Gold is now almost 14 percent up from the near three-year low of $1,180.71 an ounce seen in late June.

Copper initially was also trading higher, buoyed by strong European manufacturing data and hopes that looser credit policies in China, the world’s biggest copper consumer, could boost demand for the red metal. Three-month copper on the London Metal Exchange (LME) finished at $7.096 a tonne July 24, over $106 up on the day and its highest in more than a month. However, by late Thursday, July 25, LME three-month copper had retreated to $7,015 a tonne.

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The eurozone PMI Composite Output Index in July rose above 50.0 – the dividing line between expansion and contraction – for the first time since January 2012, according to the flash estimate, UK-based Markit Economics reported July 24. The composite PMI reached 50.4 in July, up from 48.7 in June, while the flash eurozone Manufacturing PMI Ouput Index rose from 49.8 in June to 52.3 in July, a 25-month high. The flash estimates could be revised later, but if they stand, July would be the fourth consecutive month the composite PMI had improved in the eurozone.

“The best PMI reading for one-and-a-half years provides encouraging evidence to suggest that the euro area could – at long last – pull out of recession in the first quarter,” said Markit Chief Economist Chris Williamson in a prepared statement.

Demand for copper, as with other base metals, benefits from any upturn in manufacturing activity, creating a more positive environment for investors.

The People’s Bank of China (PBOC) on July 19 announced it would remove government-mandated minimums on lending rates currently at 70 percent of the benchmark rate. The change, effective July 20, will reduce financing costs of local businesses and enhance allocation of financial resources, the bank said.

Copper prices also gained strength from the latest China’s General Administration of Customs data, which showed the country’s refined copper imports reached a nine-month high of 277,696 tonnes in June, up 11 percent from a year ago.

The latest manufacturing data from China, the leading consumer of copper and a key user of other base metals, in contrast, were weaker than expected. The preliminary HSBC China Manufacturing Purchasing Managers Index – released July 24  – fell to 47.7 in July, an 11-month low, from 48.2 in June.  Final July data for China are published Aug. 1.

Crude oil prices dropped this week following the weak manufacturing data for China, the second largest crude consumer after the U.S.

Brent North Sea crude for delivery in September fell to $106.40 a barrel July 25 before recovering to $107.69 in later trading. The U.S. benchmark West Texas Intermediate (WTI) crude for September delivery on the New York Mercantile Exchange (Nymex) touched a low of $104.08 a barrel before recovering slightly to $104.78.

On July 19, the WTI briefly lifted above Brent crude for the first time since October 2010, supported by infrastructure improvements in recent months that have helped ease the crude bottlenecks in the U.S. Midwest. WTI for delivery in August (the contract expired July 22) touched $108.09 a barrel while September Brent was trading at $107.89.

Meanwhile, the latest U.S. Crude inventory report from the U.S. Energy Information Administration (EIA) on July 24 showed U.S. crude stocks fell again – by 2.8 million barrels in the week ending July 19.

Mixed price trends for softs

Weather conditions in top producer Brazil’s main coffee-growing regions continued to influence arabica coffee futures prices this week. Renewed concerns about the risk of frost damage to the country’s coffee crop initially helped arabica prices on ICE Futures U.S. regain some of their losses following July 19’s tumble from eight-week highs. The arabica September contract had climbed to an eight-week high of $1.34 a pound July 18 after reports that temperatures would fall to near freezing in some of Brazil’s coffee-growing regions. September arabica then plunged to $1.2270 a pound the following day after forecasts indicated the country’s crops were not at risk. Another steep fall came this week; on Wednesday September arabica on ICE shed 3.8 percent to finish at $1.2125 cents a pound after reports that the Brazilian crop had sustained no meaningful damage despite some frost.

Robusta coffee futures were trading lower this week, with September robusta on NYSE Liffe in London at $1,887 a tonne in late trade on July 25, down from $1,991 on July 19.

Growing concerns about the upcoming main crop in West Africa, which starts Oct. 1, continued to support cocoa futures prices this week. Poor weather has hindered pod development in leading growing countries Côte d’Ivoire and Ghana. Both countries are reported to have forecast a smaller crop next season. Last week, in addition to West African crop concerns, strong cocoa grinding data for the second quarter from Europe, Asia and North America helped push cocoa futures higher. Cocoa for delivery in September on London’s NYSE Liffe climbed to £1,619 a tonne, the highest level since December, and up from £1,558 a week earlier. September cocoa on ICE Futures U.S. touched $2,377 a tonne July 19, the highest level for a most-active contract since June 12. This week has seen Liffe cocoa prices stabilize at around the £1,600-a-tonne level, based on the September contract, while September cocoa on ICE was trading at $2,347 a tonne early July 25.

Raw sugar futures traded just off the three-year lows seen last week, following the latest data from Brazil’s sugarcane industry association, Unica, showing sugar production in the country’s Center-South region revived sharply in the first half of July. Brazil is the biggest sugar producer and exporter. Mills in the Center-South, accounting for some 90 percent of Brazil’s sugar output, produced 2.40 million tonnes of sugar in the first half of the month, up 60 percent from the 1.50 million tonnes produced in the second half of June when rains disrupted the cane harvest, Unica data showed. The increase reflected mainly an increase in the volume of cane crushing due to the drier weather. Mills also raised a tad the proportion of cane processed into sugar rather than to ethanol in the first half of July to 45.4 percent, up from 42.4 percent in the last half of June.

The Center-South’s sugar production for the 2013/14 harvest year, which runs April 1 to July 16, was 11.3 million tonnes, a 21 percent increase over the same period last year, while ethanol production jumped 46 percent year-on-year to 9.39 billion liters from April 1 to July 16.

October raw sugar on ICE Futures U.S. was trading at $16.36 a pound around midday July 25 after touching a 16.17 cents-per-pound low earlier in the day. On July 17, ICE sugar futures had touched three-year lows of 15.53 cents.

White/refined sugar was trading slightly higher this week, with the October contract on NYSE Liffe in London at $477.35 a tonne in late afternoon trading July 25, up from $465.30 July 19.

While care has been taken to ensure that the information contained in this report is accurate, it is supplied without guarantee. The author, Lynda Davies, can accept no responsibility for any errors or any consequence arising from the information provided.