Commodities Daily - February 17, 2020

> Gold prices add 0.5% on Friday following weak US industrial output print. This morning gold prices are declining following new stimulus measures announced by the PBoC. However, the CFTC data released Friday shows that hedge funds are maintaining heavy long positioning in gold, while data on ETFs shows high purchases of gold. Today promises to be a light day for news flow, given that US markets are closed for Presidents Day. Eurozone finance ministers are slated to meet, but there are no key macro releases scheduled. We expect gold prices to return to the $1,570-1,580/oz range today.> Base metal prices rise sharply following new stimulus measures from PBoC. The Chinese regulator lowered the rate on its 1y lending facility by 10 bps to 3.15% and injected around CNY200 ($29 bln) in liquidity via mid-term funding to banks. A survey of 1,668 Chinese commodity-related companies showed that only 68% will have restored operations by the beginning of March, while 30% were unable to state when they would return to work. This morning, 3m forwards for copper are trading at $5,809/tonne, while zinc is at $2,170/tonne, nickel at $13,150/tonne and aluminum at $1,720/tonne.GOLD PRICES ADD 0.5% ON FRIDAY FOLLOWING WEAK US INDUSTRIAL OUTPUT PRINTGold prices were trading around the $1,575/oz mark early in the day on Friday, but the subsequent release of US macro data boosted demand for defensive assets. Whereas US retail sales for January met market expectations (up 0.3%), industrial output fell by 0.3% (consensus was for a 0.2% drop), while the reading for December was revised lower to -0.4%. This helped push gold up to the $1,585/oz mark by the close (a gain of 0.5% on the day). CFTC data for open gold positions among hedge funds for the week ending February 11 was published on Friday. Contracts for long positions increased 4% w-o-w to 262k, while shorts were down by 7.5k to 32.8k. The growth in the number of net long positions to 229.4k indicates that speculative interest in defensive assets remains strong. Meanwhile, holdings of gold ETFs are at an all-time high, totaling 83.5 mln oz as of Friday. This morning, gold prices are declining following the stimulus measures announced by the PBoC (see more below in the section on base metals). Today promises to be a light day for news flow, given that US markets are closed for Presidents Day. Eurozone finance ministers are slated to meet, but there are no key macro releases scheduled. We expect gold prices to return to the $1,570-1,580/oz range SE METAL PRICES RISE SHARPLY FOLLOWING NEW STIMULUS MEASURES FROM PBOCBase metals came under pressure across the board on Friday following the release of Shanghai Exchange inventory data. This morning, however, optimism has returned in the wake of the PBoC having cut the rate on its 1y medium-term lending facility by 10 bps to 3.15% and injected around CNY200 bln ($29 bln) worth of liquidity into the system via mid-term funding to banks. It also added around CNY100 bln ($14.3 bln) via 7d repo operations, which helped to stabilize short-term liquidity. We recall that two weeks ago the PBoC cut repo rates, while now the market expects the benchmark loan prime rate to be cut this week. Base metal prices climbed this morning in anticipation that these measures will buoy demand. As of this writing, 3m forwards for copper are trading at $5,809/tonne, while zinc is at $2,170/tonne, nickel at $13,150/tonne and aluminum at $1,720/tonne.Meanwhile, much remains uncertain about how China's economy is faring. Even though the coronavirus has not spread particularly rapidly outside of Hubei, it remains unclear how much disruption there has been to the supply of goods and services. A survey of 1,668 Chinese commodity-related companies carried out by Shanghai Ganglian E-Commerce Holdings showed that only 68% will have restored operations by the beginning of March, while 30% were unable to state when they would be able to do so.