Commodities: Precious metals up but oil stays on negative patch

Precious metals rose in European trading on Wednesday, while oil benchmarks continued in negative territory on a mixed day for the wider commodities market.

Gold prices strengthened as China’s moves to bolster its market and the Greek overhang continued to boost safe haven demand. At 1436 BST, COMEX gold for December delivery was up 0.59% or $6.60 to $1,123.50 on ounce, while spot gold up 0.82% or $9.20 at $1,126.91 an ounce.

Analysts at Barclays noted, “Depreciation of Chinese yuan is viewed as bullish for gold as a currency, owing mainly to its effect on US Federal Reserve policy in the coming months. China’s hard landing remains the biggest risk for the Fed hiking in September.”

Furthermore, a possible spill-over from a lower yuan and a stalling Chinese economy has reduced market expectations of the probability of a September hike. “So far, price action confirms to us that the US real rate is the primary driver of the gold price at present, as gold rallied strongly after the CNY decision,” the analysts concluded.

Silver recovered strongly from the previous session’s decline with the COMEX contract posting a rise of 2.3% or 34 cents to $15.13 an ounce. Spot platinum recovered sufficiently to bounce back 1.08% or $10.74 to $1,006.09 an ounce.

Elsewhere, trading in the base metals market remained fairly mixed. Past the midway of trading on the London Metal Exchange, three-month futures contracts of primary aluminium (down 0.4%), copper (broadly flat), and tin (down 1.1%) were trading lower.

However, lead (up 0.3%), nickel (up 0.7%) and zinc (up 0.9%) contracts were showing sufficient resistance, partially reversing the previous session’s declines to post nominal to decent gains.

There was no respite in sight for the oil markets with both Brent and WTI staying in negative territory, unable to maintain a small bounce seen in early Asian trading.

At 1453 BST, the Brent front-month futures contract was down 0.20% or 10 cents to $48.71 a barrel, while the WTI was down 0.70% or 30 cents at $42.32 a barrel. A surprise build up of 2.6m barrels in US oil inventories, when a decline was expected, added to negative sentiment.

Finally, the agricultural commodities market was largely in positive territory with major futures contracts trading up. CBOT corn (up 1.33%) and wheat (up 0.40%) futures recovered from lows seen earlier in the week (owing to bullish production data and concerns over China), while ICE cocoa futures contract was up 1.36% and cotton was broadly flat.