Copper picks up from five-week low as gold stabilises

Copper recovered from five-week lows on Monday, bouncing from initial declines as market focus shifted to improving fundamentals while gold prices stabilised after dropping the most in three-and-a-half years in the previous session.

Benchmark copper on the London Metal Exchange was up 0.6 per cent at $9,819 per tonne by 10am GMT, having earlier slipped to the lowest level since May 2 at $9,741 after speculators cut bets on higher prices.

Traders expect further buying on Tuesday when China returns from the Dragon Boat Festival holiday.

The sell-off had started on Friday after US data showed strong jobs growth in May, suggesting that the Federal Reserve might not cut interest rates as soon as previously expected.

This prompted the US currency to bounce, making dollar-priced metals more for expensive for holders of other currencies in a relationship used by funds to generate buy and sell signals from numerical models.

“Such an outsized reaction can only happen in the futures markets if traders square their positions based on some sort of automated trading,” said Julius Baer analyst Carsten Menke.

“The fundamental backdrop looks sound, but we need to see what happens whether this global manufacturing recovery everybody is expecting – based on PMIs – actually materialises.”

Surveys of purchasing managers in top consumer China show factory activity picking up, particularly at smaller companies.

However, worries about Chinese demand remain owing to rising inventories in warehouses monitored by the Shanghai Futures Exchange. Copper stocks have reached four-year highs of 336,964 tonnes, compared with about 30,000 tonnes in January.

Also indicating weakness in the Chinese market is the Yangshan copper premium, which reflects the country's demand for copper imports. The figure has been at or below zero since May.

Traders were also awaiting loans and social financing data for clues on Chinese demand prospects.

In other metals, aluminium was down 0.6 per cent at $2,563 a tonne, zinc climbed 1.1 per cent to $2,798, lead slipped 0.4 per cent to $2,191, tin was up 0.8 per cent at $31,695 and nickel gained 0.1 per cent to $18,055.

Spot gold was up 0.1 per cent at $2,296.76 per ounce, as of 9.33am GMT. Meanwhile, US gold futures fell 0.5 per cent to $2,313.80.

Bullion lost about $83 on Friday, declining 3.5 per cent in its biggest one-day drop since November 2020 after a stronger-than-expected US jobs report dented hopes for a September rate cut and news on China's central bank holding off gold purchases put off investors betting on Chinese demand.

“People's Bank of China has never been a constant buyer,” Mr Menke said. “There have been distinct phases of buying followed by multi-month breaks. But, as long as the PBOC doesn't resume buying, gold prices could trade sideways because the China buying topic is a key market focus.”

“Given that we had this decisive sentimental move on Friday, I'd be very surprised if we get a similar-sized volatility outbreak this week again unless there's a major surprise on the CPI side or the Fed side, but that seems quite unlikely.”

Market focus has shifted to the US consumer inflation report, due on Wednesday, the same day as the Fed's policy decision.

The US central bank is not expected to make any change this week, and focus will be on comments from Fed chair Jerome Powell and changes to economic projections from policymakers.

Bets of the Fed cutting rates in September fell to 49 per cent from around 70 per cent before the jobs data.

“We expect a lift in the Federal Reserve's median 'dots plots' to two cuts this year (from three); but inflation should still moderate, and a September cut is our base case,” UBS said in a note.

Spot silver rose 1.7 per cent to $29.67 per ounce, platinum was up 0.5 per cent at $968.40 and palladium was steady at $912.15.