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Societe Generale: Six Factors To Watch For Precious Metals In 2014

Friday January 10, 2014 12:55 PM

Societe Generale lists six factors likely to influence the precious-metals complex in 2014. The list starts with U.S. monetary policy, with the market to focus first on how quickly Federal Reserve policy-setters taper quantitative easing, and later when the Fed might start hiking rates. For platinum group metals, traders will be watching to see if strikes occur in South Africa. “Turning to 2014, the risk of a major disruption early in the New Year is high as the now largest trade union in the South African mining sector, the AMCU (Association of Mineworkers and Construction Union), has outstanding strike notices at all three of the largest producers,” SocGen points out. Traders also will be eying the probable launch of an Absa palladium exchange-traded fund in South Africa after the successful launch of one for platinum last year. Chinese demand for gold will again be a focus, although the bank cautions that 2014 demand may be unlikely to match 2013, when buying “exploded” higher after prices fell. Government actions are always a focus, in particular what India will do with rules curbing gold imports due to the current-account deficit. Meanwhile, at the start of the New Year, rebalancing of commodity indexes is offering some support to gold and silver, SocGen says.

By Allen Sykora of Kitco News; asykora@kitco.com


Barclays Sees Flat Indian Gold Demand For Jewelry In 2014

Friday January 10, 2014 12:55 PM

Barclays envisions Indian demand for gold jewelry to remain around 600 metric tons in 2014. The government passed a number of measures in 2013 aimed at curbing gold imports due to the current-account deficit. This resulted in an apparent increase of smuggling gold, Barclays says. “Ordinarily a lower price environment for gold…would mean increased gold demand in India; however, given these import restrictions, we expect about 600 tons of gold jewelry demand from India in 2014, which is flat y/y compared with 2013,” Barclays says. “This assumes that the current restrictions remain in place, which is not certain given upcoming elections and the politics surrounding altering the import restrictions.”

By Allen Sykora of Kitco News; asykora@kitco.com


DailyFX’s Vecchio: Jobs Report Could Mean Further Dollar Weakness

Friday January 10, 2014 10:41 AM

Softer-than-forecast jobs gains in the U.S. last month could mean further dollar weakness, says Christopher Vecchio, currency analyst at DailyFX. “The December U.S. labor market report was widely anticipated to be the cherry on top of a modestly strong 2013 for the U.S. economy,” he says. The economy had been improving enough that the Federal Reserve announced last month that it would start scaling back the program known as quantitative easing. But then a report Friday showed non-farm payrolls rose by only 74,000 last month, tempering enthusiasm, Vecchio says. “Market participants are putting this data on the side of no additional QE3 tapering, at least in January, based on the ‘gut’ reaction,” he says. “Initially, the U.S. dollar was perked higher on the improvement in the headline unemployment rate, but the rest of the data provoked a head fake. Considering that the participation rate fell to its lowest level since 1978, the drop in the unemployment rate looks rather hollow. With speculators their most net-short U.S. Treasuries at any point over the past three years, such a weak NFP print could provoke a significant pullback in U.S. yields -- particularly in the 5Y-10Y range -- and hurt the U.S. dollar over the coming days."

By Allen Sykora of Kitco News; asykora@kitco.com


INTL FCStone: Base Metals Higher After ‘Strange’ U.S. Jobs Data

Friday January 10, 2014 9:52 AM

Base metals have a stronger tone after a “rather strange” set of numbers surrounding the December U.S. nonfarm payrolls report, says Edward Meir, commodities consultant with INTL FCStone. Jobs growth of 74,000 was well below the 197,000 expected, but the unemployment rate fell sharply to 6.7% from 7%. “We should note that the two reports are derived from different sampling pools and so move in opposite directions at times,” he says. “The dollar weakened substantially on the news, now at $1.3650 against the euro. Investors have apparently latched onto the weaker payroll number and are thinking that the softness shown here could slow the Fed’s tapering program. However, it is still early to say for sure and we will have to wait and see how the various markets settle over the course of the day.” As of 9:47 a.m., all six of the base metals traded on the London Metal Exchange were higher. Bellwether three-month copper was up $73.50, or 1%, to $7,286.50 a metric ton.

By Allen Sykora of Kitco News; asykora@kitco.com


TDS: Weak Jobs Data Unlikely To Halt Fed’s QE Exit

Friday January 10, 2014 9:49 AM

Millan Mulraine, deputy head of U.S. research and strategy at TD Securities, says there is some evidence of faltering momentum in the U.S. labor market, as 74,000 new jobs were created in December, well below economist expectations. However, he adds the “miserly” jobs report is unlikely to halt the Federal Reserve’s plans to end its quantitative easing measures this year. “Despite the disappointing performance in December, the U.S. economy recorded a very robust 2.2 million jobs gain in 2013, adding to a similar increase the year before, and with other indicators of economic health posting to continued upside momentum in activity, we view this report as more an anomaly in an otherwise uptrend in employment activity."

By Neils Christensen of Kitco News; nchristensen@kitco.com


CIBC Calls U.S. Employment Report A ‘Head Scratcher’

Friday January 10, 2014 9:18 AM

The December U.S. jobs report was a “head scratcher,” says CIBC World Markets.  Nonfarm payrolls rose by only 74,000, much below the recent trend, although some of this was offset by a 38,000 upward revision for the November report. Some of the big surprises were a drop in construction employment, after Wednesday’s ADP private-sector payrolls report showed a gain, and softer services hiring, other than in temporary help and retailing. “The household survey saw another huge drop in participation, so a 143K rise in household survey employment -- always a choppy series -- led to a 3-tick drop in the jobless rate to 6.7%,” CIBC says. “That’s closing in quickly on the 6.5% rate that the Fed once cited as when they would start looking at rate hikes, although the FOMC (Federal Open Market Committee) will not be impressed by how we are getting to such levels. Overall, markets will look past the ‘improvement’ in the unemployment rate and judge this as a weak reading, pushing bond yields lower and taking a bit of steam out of equities today.”

By Allen Sykora of Kitco News; asykora@kitco.com


Barclays: China's Commodity Imports End 2013 Strongly

Friday January 10, 2014 7:38 AM

Chinese commodity imports – such as base metals and energy -- ended 2013 strongly, says Barclays. “Year-end restocking as well as financing-driven imports fueled the strength, though full-year growth was muted,” the bank says. Unwrought copper and semi imports stayed at an “elevated level” in December, reaching some 441,000 metric tons, Barclays says. “Full year imports of 4.54Mt were only 2.2% lower than 2012, with most of the strength in Q2. Importers had signed less contracted tonnage for 2013 but had to book more spot material when both physical and financing-driven demand improved,” Barclays says. “While spot import arb was closed for most of Q4, strong demand for financing drove up imports into year end.” Unwrought aluminum and semi imports jumped 43% month-on-month to 125,000 tons, almost double the low base in 2012, Barclays says, although full-year imports of 963,000 were 18% lower than 2012. Crude oil imports rose 10% in December to 6.33 million barrels a day, up 13% year-on-year. “This monthly import total was the highest of the year and pushed 2013 crude imports to 5.66 mb/d, up 4.3% y/y,” Barclays says.

By Allen Sykora of Kitco News; asykora@kitco.com


TDS: Index Rebalancing Plays Role In Gold Gains So Far In 2014

Friday January 10, 2014 7:36 AM

Much of gold’s gains so far this year are likely related to commodity index rebalancing, says TD Securities. Friday’s U.S. non-farm payrolls report could pose a threat to the rally, however, should the data be stronger than expected and prompt worries about the Federal Reserve speeding up the process of scaling back its quantitative-easing program, analysts say. “We suspect that much of the impetus for the bounce higher since the end of last year has come about as the result of anticipatory spec long positioning and short covering ahead of a scheduled commodity index rebalancing,” TDS says. “The two widely-followed commodity indexes—S&P GSCI index and the DJ-UBSCI index—have started buying gold and silver futures to rebalance their positions. This will all be done by next Wednesday. Based on our calculations, the indexers will need to add derivative contracts equivalent to near 2 million oz during the five-day roll period (390koz/day) of gold futures and about 55 million oz (11MMoz/day) of silver in order to match the new target weightings for the two indexes.” While these purchases added momentum to gold and silver, they alone do not change the long-term dynamics of the market. In particular, if the U.S. jobs number were stronger than expected, speculators might take out more short positions and lighten on their long holdings, TDS cautions.

By Allen Sykora of Kitco News; asykora@kitco.com



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