Commodities: Gold keeps coffee and copper in shape

“Base metal prices benefited from easing economic fears after US inflation came in weaker than expected in July,” Commerzbank analysts said.

Base metal prices rallied on the London Metal Exchange (LME) this week, buoyed by a more optimistic global economic outlook coupled with disruptions in key producing countries.

“Base metal prices benefited as economic fears eased after US inflation came in weaker than expected in July,” commented Commerzbank analysts.

According to the Consumer Price Index (CPI) released by the Department of Labor on Wednesday, consumer prices in the United States rose 8.5% from a year earlier. But inflation over a month is zero, which means that, contrary to all expectations, prices have not increased compared to June.

Wholesale prices in the United States fell in July for the first time since April 2020, giving another signal of slowing producer- and seller-side inflation, according to the producer price index (PPI) released on Thursday.

“Recent strength in base metals suggests the market has temporarily quashed recession fears,” the Marex brokers also note.

Copper is particularly affected. Thanks to its high electrical conductivity, “copper is the basis of all the electronic devices we use, from smartphones to medical devices,” says Saxobank analyst Ole S. Hansen.

Metal is also the basis of current electrical systems, making it one of the barometers of the world economy as it is closely linked to growth.

Along with data showing that the US economy remains resilient, the dollar moving away from recent highs, “an easing of concerns about the demand outlook in China” and, most notably, “disruptions among producers in Asia, Europe and South America, which could reduce supply,” Mr. Hansen lists as supporting metal prices.

Especially at a time “when stocks controlled by exchanges are at a decade low,” he notes.

As of 16:15 GMT (18:15 Paris) on the LME, a tonne of copper for three-month delivery was trading at $8,100.50 on Friday, up from $7,870.50 at the close seven days earlier.

The energized coffee

Coffee rallied, with robusta even rising to its highest level since last February, as Colombian production and exports from Brazil fell sharply.

In London, robusta is up more than 10% in a week.

According to Rabobank, “Logistics bottlenecks and a slight delay in harvesting affected July exports” in Brazil, the world’s largest producer of Arabica and a key producer of Robusta.

Rabobank analysts also note that the local Brazilian industry has increased the use of robusta in their blends, reducing the supply available for export.

In July 2022, Brazil’s Robusta coffee exports fell by 60% year-on-year, they add.

On the Arabica side, Rabobank notes a sharp drop in production in Colombia (-22% year-on-year), which is also a major coffee-producing nation, due to heavy rains that fell on the country and work on the fields more difficult.

On New York’s ICE Futures US, a pound of Arabica for delivery in July was worth 225.50 cents, down from 209.45 cents seven days earlier.

On the Liffe in London, a tonne of robusta for September delivery was worth $2,255 at 16:15 GMT on Friday, up from $2,042 at the close a week ago.

Gold stays the course

Gold continued to be held throughout the week, even surpassing $1,800 an ounce on Tuesday and Wednesday amid concerns over the global economy.

Market expectations for upcoming Federal Reserve (Fed) rate hikes in the United States “remain the driving force behind gold price action,” said Han Tan, an analyst at Exinity.

“Further deterioration in the global economic outlook, limiting the scope for major central banks to raise interest rates, could in turn spur further gains for safe-haven gold,” he continued.

“The fact that gold continues to hold most of its gains without a significant correction may indicate that the appetite for gold is still there,” comments Craig Erlam, analyst at Oanda.

An ounce of gold was trading at around $1,797.04 as of 16:15 GMT, up from $1,775.50 seven days earlier at the close of trading.

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