Metals Market Under Pressure: Chinese Data and Rising Inventories Impact Gold and Other Metals

Metals: Headwinds for gold

The metals complex came under pressure yesterday following the weak set of Chinese data (retail sales and industrial production), whilst Chinese new home price data released this morning will also do very little to help sentiment with prices in July falling 0.23% month-on-month, compared to a MoM decline of 0.06% in June.

On top of weak Chinese macro data, LME inventories for a number of metals continue to climb higher. LME copper stocks increased by 4,775 tonnes yesterday to a little over 90k tonnes. In fact, LME copper inventories have increased by almost 36k tonnes since mid-July. Higher inventories have weighed on the LME copper cash/3m spread with it trading in a contango of US$56/tonne, compared to a contango of just US$7/tonne back in mid-July. Zinc inventories in LME warehouses also saw big increases yesterday with inflows of 14,725 tonnes, which leaves inventories at 106,900 tonnes- the highest levels since April 2022.

Spot gold is managing to hold above US$1,900/oz, although it briefly broke below this level following stronger-than-expected US retail sales numbers. This data might start to raise some doubts over whether the Fed is really done with its tightening cycle. Any further data suggesting the Fed still has more work to do will likely put pressure on gold prices. And with the increase seen in real yields lately, it is difficult to see any meaningful upside to gold prices in the short term.