The metals market was disappointed with China’s top economic planner as it failed to offer any specific further stimulus measures on Tuesday.
Gold and copper prices took a hit on Tuesday, and the recent rally in prices of both these metals is in danger of fizzling out in the coming weeks, according to analysts.
“Industrial metals declined this morning with disappointment over China sparking a risk-off move,” Ewa Manthey and Warren Patterson, commodity strategist at ING Group said in a note.
The economic situation in China continues to raise concerns about Beijing’s recovery path. Demand for key commodities such as crude oil, gold, and base metals has remained poor, dragging on investors’ sentiment across the world.
China is the world’s biggest consumer of base metals and gold.
Gold weighed down by reduced bets on oversized US rate cuts
Gold prices have fallen since last week as positive economic data from the US tempered interest rate cut expectations by the Federal Reserve in its upcoming policy meetings.
The US labor market report showed a much stronger-than-expected increase in jobs created in September. In addition, the unemployment rate in the country fell and average hourly earnings also rose sharply.
According to Fed fund futures, market participants now expect interest rates to be cut by only 25 basis points in both November and December.
Carsten Fritsch, commodity analyst at Commerzbank AG said in a report:
This is 25 basis points less than previously expected by the end of the year and corresponds to the Fed’s and our economists’ expectations.
Safe-haven demand limits fall in gold prices
Fritsch said the fact that gold prices have not corrected sharply after strong economic data in recent weeks is due to the ongoing conflict in the Middle East, which is spurring safe-haven demand.
“Thus, gold is currently being pulled in different directions by opposing factors,” Fritsch said.
Meanwhile, China’s central bank reported unchanged gold reserves of 72.8 million ounces at the end of September. This means that the bank has not purchased gold for five straight months.
Further, in its briefing on Tuesday morning, China’s National Development and Reform Commission did not announce any specific further measures.
Beijing said it is confident in reaching its economic targets this year and promised to further support growth, although it held back on unleashing more major measures.
According to Fxstreet.com, gold prices have technical support at a $2,600-per-ounce level. If prices fall below the level, then the next support is around $2,560, it said.
The corrective decline could extend further towards the next relevant support near the $2,535-2,530 region en route to the $2,500 psychological mark.
The most-active gold contract on COMEX was $,2,665.60 per ounce, mostly unchanged from the previous close.
The price hit a more than one-week low of $2,647.55 per ounce earlier on Tuesday as the recent rally in the yellow metal’s prices took a pause.
Copper price rally fizzles out
The base metal market was enjoying a brief rally before Tuesday.
The rally was mostly driven by expectations of further stimulus from China.
As China’s top economic planner did not offer any new pledges, prices of copper fell sharply.
Copper, which gained nearly 15% since the beginning of September, and was trading above $10,000 per ton last week, slid back to $9,700 per ton on Tuesday.
Commerzbank’s Fritsch said:
This came as a rude awakening and shows once again how thin the air is after the recent rally. Analysts are now waiting for further details from the Ministry of Finance. The longer they have to wait, the more the metal prices are likely to fall.
Last month Beijing had introduced a slew of stimulus packages, including interest rate cuts and targeted support for the property sector that had boosted prices of copper.
At the time of writing, the three-month copper contract on the London Metal Exchange was $9,792 per ton, down 1.4% from the previous close.
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