Commodities were trading higher across the board today, as the strong Chinese manufacturing data encourages demand, while at the same time the US dollar retreats. The Chinese PMI data brings about added buoyancy in the commodity markets, with the strong performance seen coming despite the country’s efforts in recent weeks to cool the economy; bringing about hope that commodity demand from the Asian giant will not diminish despite falling economic growth.
The metals complexes have been seeing good gains on the back of the Chinese data today, both precious and base, although gold is bucking this trend somewhat, holding rangebound today as traders continue to show caution ahead of the Fed quantitative easing (QE) announcement tomorrow (not to mention the US midterms tomorrow and the monthly US non-farm payroll data due Friday).
On the technical front, Friday’s break above the 21-day moving average at $1,345/oz triggered a reversal in sentiment, with 10-day momentum and the daily stochastics both now pointing to the upside while above this level. Any moves to the upside are set to meet resistance from the all-time high near $1,387/oz, while a break below the 21-DMA would once again open up the downside before towards the June high at $1,265/oz.
The weekly commitment of traders report released by the Commodity Futures Trading Commission (CFTC) after the bell Friday shows how the closing of speculative longs helped gold pullback last week, after it showed a 10,666 contract decrease in the net long position, predominantly brought about by a 16,122 contract closure in speculative long positions. This is the lowest position in around seven weeks, and is the largest weekly decrease since July. The CFTC data showed a similar pattern for silver in the week, with net long positions losing 2,788 contracts to 40,509, mainly due to a closure of 3,260 speculative long positions.
In the base complex, the Chinese state run Antaike research group has increased its forecast for aluminium production this year, albeit only slightly to 17.5 million tonnes – 35% higher than last years production. Again this comes despite the country’s energy saving efforts this year, which were expected to impact the energy intensive aluminum production and processing industry particularly, as Antaike suggests that any reductions due to these measures are being offset this year from the commissioning of new smelter capacities.
Looking at Nymex copper futures, the CFTC data showed a small 313 contract addition to the net speculative long position week ending October 26; taking it to the highest point since January this year at 26,463 contracts. This came as speculative long positions increased by just fewer than one thousand contracts, to the highest point in seven years at 55,260. That said, measured as a percentage of open interest, which itself increased by 4,208 contracts in the week to 167,063, the number has actually held steady between 33% and 33.5% for the past four weeks.
Benchmark energy prices have been seeing similar gains to that of the metals today following the Chinese data, with Nymex light sweet crude trading back above the $82/bbl mark. Colder than expected weather forecast on the US east coast in the coming week is seen helping natural gas and heating oil today, with the weaker dollar adding helping to underpin strength in the complex as a whole.
In a move that in effect negated the previous week’s, the number of net long positions in WTI Nymex crude increased by 24,441 contracts last week to 125,271, almost fully offsetting the previous week’s 28,000 contract decline. Both long and short speculative positions mirrored this move, with long positions increasing by 12,851 (having fell by 14,690 week ending October 19), while short positions fell 11,590, having jumped by 13,806 the previous week.
This is reflected in the price action for the period, with rangebound trade looking set to dominate the commodity unless something significant, say the announcement from the fed tomorrow for example, can do something to shift it out of this lull.
Disclosure: No positions