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Commodities: Energy, metals benefit from strong demand, weak US dollar
Metals gained modestly on London Metal Exchange on Thursday, oil prices rose and gold's relationship with the dollar outweighed that with Treasury yields.
Three-month LME copper futures closed flat (+0.01%) at $7,119 a ton. Three-month LME aluminum and zinc gained 0.25% to $2,225 and 0.48% to $3,557 a ton respectively.
This week's data showed that manufacturing activity hit multi-year highs in some Asian counties, including Japan. Strong global demand for hi-tech products particularly gave support to metal prices.
Chinese factories raised output to meet demand, though at a slower pace due to deleveraging and anti-pollution measures.
Combined with depreciation in the US dollar, the LME index of six base metals rose 2.6% to $3,442 since January 24.
Moving forward, traders are expected to trim their positions as China prepares to celebrate the Lunar New Year, with activity in the People's Republic due will slow significantly during festivities.
Energy prices picked up positive momentum on weaker US dollar, despite concerns of rising global glut after the Energy Information Administration reported a rise of 6.8m barrels in US crude inventories last week. This was the first weekly rise in eleven weeks.
West Texas Intermediate futures gained 0.46% to $66.30 a barrel. Brent crude futures gained 0.30% to $70.00 a barrel.
"Brent has managed to rebound sharply from the $68.03 mark, following a downbeat start to the week" said Joshua Mahony, market analyst at IG. "The ability to break through $70.85 would signal a continuation of the wider bullish trend."
Comex gold futures advanced 0.32% to $1,352 per ounce on Thursday despite rising US yields increasing the opportunity cost of holding the non-interest-rate-bearing gold.
But, the rise in 10-year US Treasury yields (nominal and real) has not weighed visibly on gold prices, observed Georgette Boele, senior precious metals and diamond analyst at ABN Amro.
"Moreover, higher expectations of Fed rate hikes in 2018 and 2019 and positive equity markets have also not weighed on gold prices" she added.
The strong negative correlation between gold and the US dollar remains in place, "proving once more that out all of the drivers, the US dollar is the variable to watch," according to Boele.
By Ipek Ozkardeskaya