Mighty Month for Metals Sees Best Gains in Years on Rates, China

  • Gold posts second monthly gain; zinc in best month since ’15
  • LMEX index closes Thursday at highest level since 2014

Gold Gains After Weak U.S. Jobs Data

If you thought metals were only rallying on dollar weakness, think again.

Gold posted its best month since January as U.S. political turmoil helped boost demand for precious metals as havens. Zinc’s monthly gain was the biggest in more than two years and copper had its best August since 2009, pushed by bets on tighter supplies and Chinese demand.

Base metals are gaining as improving economic data and low borrowing costs stoke demand, even as the dollar heads for its first monthly gain in six. Signs of tame U.S. inflation have reduced odds the Federal Reserve will tighten monetary policy this year. Luc Luyet, a currency strategist at Pictet Wealth Management, said that for 2018 the central bank may not be able to do “much more than one hike.” 

“Even if the data looks good, the market is starting to believe the Fed does not have a hawkish view,” Frank Cholly, a senior market strategist at RJO Futures in Chicago, said in a telephone interview. “They can’t justify rate hikes with such low inflation.”

A gauge of the U.S. dollar is little changed in August after five straight monthly losses. Gold futures have risen for four of the past five sessions, while an index of the main metals traded in London posted an eighth straight weekly gain, the longest run since May 2006.

Three-month copper rallied 0.3 percent to settle at $6,788 a metric ton on the London Metal Exchange at 5:50 p.m. local time, near the highest close since 2014. That locked in gains this month of 6.6 percent. Nickel rallied 16 percent in August, aluminum climbed 10 percent, and zinc added 13 percent. The six-metal LMEX Index closed Thursday at the highest since September 2014.

Industrial metals have rallied this year amid burgeoning optimism about consumption in China, as well as the impact of supply-side reforms, especially for aluminum. Stronger-than-expected U.S. gross domestic product and employment figures are also lending support.

“The economic figures from the U.S., China and EU are all improving,” Richard Fu, head of Asia-Pacific sales at Amalgamated Metals Trading Ltd., said by email. Short-term technical traders are also being drawn into the rally as prices break new highs, while bearish funds are also buying to stop out of their positions, he said.

Investor Shift

The gains have spurred banks to raise their outlooks. Macquarie Group Ltd. boosted price forecasts in a note received on Thursday that highlighted a shift in investor attitudes.

China’s factory gauge strengthened again in August, according to Thursday’s figures, suggesting the economy’s resilience. The manufacturing purchasing managers index was 51.7, beating the 51.3 forecast in a Bloomberg survey of economists and topping July’s 51.4. Numbers above 50 indicate expansion.

Miners have benefited from the advance in metals. The London-traded shares in commodities powerhouse Glencore Plc advanced for a third month in August, while Rio Tinto Group added 6.4 percent this month. BHP Billiton Ltd. is also higher.

The Bloomberg Intelligence Global Copper Competitive Peers index is up 7 percent in August, which would be its best month since November. Vancouver-based Teck Resources Ltd. is among the best performers.

Gold Gains

The BI Global Senior Gold Valuation Peers gauge has advanced 9.2 percent, the most since January.

Gold futures this week closed above $1,300 an ounce for the first time since November as conflict looms over North Korea’s nuclear ambitions, which has also hurt stocks and buoyed Treasuries. Bullion should trade above that level in 2018 as the dollar weakens and the Fed sticks to just two rate hikes, in December 2017 and then March, according to Pictet’s Luyet. Gold futures for December delivery climbed 0.6 percent to settle at $1,322.20 at 1:30 p.m. on the Comex in New York.

“The missile firing was a contributing factor” in gold’s advance, Bart Melek, head of global commodity strategy at TD Securities in Toronto, said by telephone. Adding to the tail winds for gold has been “the risk-off environment, combined with a significant portion of the investing public thinking the Fed will not deliver,” he said.

— With assistance by Jasmine Ng, and Winnie Zhu

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