Commodities: Precious metals rally on hopes of US rate hike delay, China stimulus

Precious metals rallied on Wednesday as the dollar fell to a seven-week low on expectations the Federal Reserve will delay an interest rate hike.

Gold rose 0.82%, silver was up 1.28% and platinum gained 0.54% on the COMEX as the dollar fell after worse-than-expected US reports on retail sales and the producer price index led traders to added to bets the Fed will hold off on raising rates at its meeting later this month.

Retail sales volumes Stateside edged higher by 0.1% over the month in September (consensus: 0.2%), although August's tally was revised to a flat reading instead of a rise of 0.2%.

"The softness of September’s retail sales figures supports our view that the Fed probably isn’t going to hike interest rates until early next year," says Paul Ashworth at Capital Economics. He estimated third quarter real consumption growth was running at around 3% instead of the 3.6% he had been projecting before the latest data.

A bigger-than-expected slowdown in Chinese inflation in September, also gave gold a boost as it raised hopes of further stimulus.

“Gold prices have continued their recent rise hitting their highest levels since early July as speculation rises that we could well see further stimulus from China and a possible delay to the prospect of a rate rise out of the US this year, as divisions amongst Fed policymakers start to break out into the open,” said Michael Hewson, chief market analyst at CMC Markets. “They have run into some technical resistance at the 200 day MA.”

On the downside, oil prices remained under pressure after Tuesday’s volatility, trading at the lowest levels in a week on worries about oversupply and slowing demand.

At 1548 BST, the Brent front-month futures contract was down 0.79% to $48.85 per barrel, while West Texas Intermediate fell 1.25% to $46.08 per barrel.

The International Energy Agency reported on Tuesday that global oil demand will slow to 1.2m barrels a day next year from a five-year high of 1.8m barrels a day in 2015. The resumption of Iranian oil flow is meanwhile expected to add to the abundant supply.

“As oil prices continue to sag this is arguably a return to bad news being good, as it will no doubt give the Chinese government a prod in the ribs that fresh stimulus is required,” said IG’s senior market analyst Alastair McCaig.

Meanwhile, base metals were mixed with the LME three-month futures contracts for primary aluminium up 0.8%, lead up 0.5%, nickel down 0.3%, tin off 0.5% and zinc 0.2% lower.

Three-month copper futures out on the LME ended the session with losses of 0.3%.

Finally, headline agricultural commodities futures were largely in negative territory with exception of cotton and live cattle: CBOT corn (down 0.72%), wheat (down 1.69%), ICE cocoa (down 0.38%) and ICE cotton (up 0.33%) and CME live cattle (up 1.15%).