London Metal Exchange base metals prices and spot gold were consolidating in London on the morning of Wednesday March 2, following average gains of 2.6% across the base metals on Tuesday as the market prepared for likely supply losses from Russia.
* United States 10-year treasuries rates were recently at 1.73%, down from more than 2% on Friday, as haven demand rises
* Spot Brent crude oil trading at more than $110 per barrel
* More international companies start to boycott Russia
Base metals
Three-month base metals prices on the London Metal Exchange were down across the board on Wednesday morning, with prices down by an average of 0.4%, led by a 0.8% fall in copper ($9,999.50 per tonne). We see this as consolidation following Tuesday’s strong gains, but it may also be signalling that, in addition to an increased risk of reduced supplies, higher energy prices could start to throttle economic activity and, therefore, demand for the metals.
The most-traded contracts on the Shanghai Futures Exchange were up this morning by an average of 0.8%, led by a 1.8% rise in April nickel, while April copper was up by 0.6% at 71,350 yuan ($11,302) per tonne. The gains in China seem to be following the gains seen on the LME on Tuesday.
Precious metals
The precious metals were mixed on Wednesday morning, with gold off by 0.2% at $1,937.76 per oz, but this was also after a strong showing on Tuesday, which saw the price up by 1.9%. Overall, the precious metals were up by an average of 3% on Tuesday, not surprisingly led by palladium, which was up by 4.9% at $2,611 per oz. It is up a further 0.5% so far on Wednesday at $2,624.50 per oz. A downward trending gold/silver ratio - recently at 1.77, compared with around 1.80 as recently as February 21 - shows silver is generally outperforming gold.
Wider markets
Haven demand has seen the yield on United States 10-year treasuries slip to 1.73%, down from 2% on Friday February 25.
Asia-Pacific equities were mainly weaker on Tuesday: the Hang Seng (-1.43%), the Nikkei (-1.68%) and China’s CSI 300 (-0.84%), while the Kospi (+0.16%) and the ASX 200 (+0.28%) were firmer, with the latter up on the back of stronger commodity prices.
Currencies
The US Dollar Index is climbing again and was recently at 97.58. The knee-jerk reaction to Russia’s invasion of Ukraine on February 24, saw the Index spike up to 97.74, so the index is approaching those levels again.
The other major currencies were weaker: the euro (1.1098), sterling (1.3279), the Australian dollar (0.7251) and the Japanese yen (115.13).
Key data
Economic data out already on Wednesday shows that United Kingdom shop prices climbed by 1.8% in February, compared with a year ago, after a 1.5% rise in January.
Later there is key data on Spanish and German unemployment changes, EU consumer prices and US data on crude oil inventories and the Beige Book.
President Joe Biden spoke early Wednesday morning, later today other central bankers are speaking including: German Bundesbank president Joachim Nagel, US Federal Reserve chair Jerome Powell, US Federal Open Market Committee member James Bullard testifies and UK Monetary Policy Committee members Silvana Tenreyro and Jon Cunliffe will be speaking.
In addition, there is an OPEC+ meeting taking place.
Wednesday’s key themes and views
For now we expect the threat of shortages of supply to outweigh concerns that high energy prices will slow growth, although the latter may dominate further down the road. As such, with more companies boycotting Russia, which is likely to mean more international companies do not buy Russian commodities, or cannot get trade finance for them, it is likely to mean tighter availability and that is likely to see prices rise further.
Increased haven demand, raised inflation pressures and the likelihood that central banks cannot be as hawkish as they want to be, is likely to underpin gold’s rally. The other precious metals are likely to follow, especially the platinum group metals.