METALS HOLD GAINS

Gold steady above psychological $2000

The surge in precious metals last week was powered by a weaker dollar and expectations for rate cuts in 2024, driving gold above $2,000 despite high U.S. yields. With growing uncertainties from conflicts like Israel-Hamas, gold might find favor. While central banks are keen on gold, individual investors have been less interested due to higher cash rates and a strong stock market. But this might shift if the Fed turns to rate cuts. The Fed’s dovish stance prompted speculations about future rate cuts, leading to a dip in the dollar index and a breakout for gold, hitting the $2,000 milestone. Gold’s next moves hinge on sustaining above $2040 in the current weak U.S. dollar trend. Or going below $1980 due to the ongoing Israel-Hamas conflict escalating.


Silver steady

Responding to dovish Fed statements hinting at potential rate cuts, silver is hovering around $24.18 against the dollar after about 5% gains last week. The US ISM Services PMI indicated ongoing service sector growth at 52.7, the JOLTs Job Openings report fell short at 8.73 million compared to the expected 9.3 million. This bodes well for upcoming Fed policy loosening. Despite a slight uptick in US Treasury yields and the Dollar Index reaching 102.50, investors now await further economic data to seek clearer insights into the Fed’s future actions. Lose policy conditions are welcome as they are expected to bring about the much anticipated soft landing of the economy by the Fed.


Copper concerns abate

Concerns about a global economic slowdown was the reason behind the simultaneous fall in copper and oil prices. China’s proposed stimulus for the real estate sector is anticipated to boost copper demand. Copper is poised for a significant upswing amid the global shift towards renewable energy and rising electric vehicle (EV) demand in emerging economies. The anticipated shortage in copper supply could exert upward pressure on prices. The Fed’s dovish policy and its anticipated soft landing is also a reason for copper’s rally this week to $3.9103 which resulted in gains of over 1.57% last week.


Sanctions on Russia

The UK has introduced fresh sanctions targeting Russia, preventing British entities from trading various Russian metals starting December 15. The measures encompass metals like copper, nickel, aluminum, lead, and zinc originating from or located in Russia. The LME (London Metal Exchange) had already limited Russian metal deliveries to its UK warehouses due to earlier government sanctions. Presently, no Russian metal is warranted in LME-listed UK warehouses.


China’s stimulus lift industrial metals

China reported a 6.6% year-on-year surge in industrial output for November, surpassing market expectations of 5.7%. Notably, LME copper and aluminum prices surged over 3%, leading gains among base metals. The 3.8% month-on-month decline in China’s monthly crude steel production in November reflects domestic mills cutting output due to shrinking profit margins, escalating raw material costs, and an uncertain demand outlook. Yet, overall steel output rose by 1.5% year-on-year while primary aluminum production increased by 4.8% year-on-year in anticipation of better demand prospects and improved profit margins.


Overall the metal complex is buoyed by change in Fed policy and China’s stimulus to revive its economy. Headwinds exist but bulls are looking in charge.


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