Talking Points
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Crude oil and gold retreat as traders re-assess Ukrainian tensions
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Dovish “fed speak” may dampen USD demand and boost gold prices
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Copper vulnerable to further declines on disappointing China GDP print
The precious metals are retreating alongside declines for energy commodities during the Asian session as traders likely digest strong US economic data overnight and weigh the prospect of an escalation of turmoil in Eastern Europe. Waning Ukrainian tensions may weigh on crude oil and gold in the session ahead, with additional guidance offered by upcoming ‘Fed’ speak and US inflation figures. Meanwhile, Copper is likely to face a volatile 24 hours ahead with top-tier Chinese economic data on tap.
One Eye On The East
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WTI and palladium have continued their slide in Asian trading as investors likely re-assess the potential threat of supply disruptions posed by the most recent flare-up in the ongoing Ukrainian crisis. Similarly, gold and silver prices are pulling back as ebbing geopolitical concerns sap safe-haven demand for the precious metals. While the stand-off between Russia and Ukraine remains on the radar, the absence of a further escalation may weigh on crude oil and gold in the session ahead. The sharp correction in the gold price in mid-March that occurred as concerns over Eastern Europe abated should be kept in mind (see chart below).
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Traders Listening For Dovish “Fed Speak”
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The precious metals may yet find some support on dovish comments from Fed Chair Janet Yellen during her upcoming speech. Traders will be quick to remember the plunge in gold prices following Dr. Yellen’s recent suggestion that the central bank may hike rates within six months of finishing its quantitative easing program. A reassurance that Fed policy will remain highly accommodative to support continued improvements in the US labour market may renew selling pressure in the greenback, which in turn is bullish for gold.
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Upcoming US CPI figures may face a fairly muted reaction, barring a significant deviation from expectations Persistently low levels of inflation and well-anchored expectations have afforded the Fed considerable scope for easy policy. It would take a material increase in CPI to prompt a more aggressive stance from the central bank which would be supportive for the greenback and bearish for gold.
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Copper’s Fate Hangs On Upcoming China Data
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Chinese Retail Sales, Industrial Production and first quarter GDP figures are all set to drop on Wednesday, putting copper in store for a potentially volatile 24 hours ahead. On balance economic data out of the world’s largest copper consumer has been disappointing of late, which has likely contributed to the melt-down in the copper price which has fallen by roughly 10% year-to-date. Thus another miss from tomorrow’s top-tier releases could send copper plunging below critical support at the $3.00 handle.