Commodities Daily - February 19, 2020

> Gold breaks above $1,600/oz, closes 1.3% higher. Most of gold's gains yesterday came after the opening bell on Wall Street. After breaking through resistance at $1,591/oz, gold reached as high as $1,605/oz before slipping back to $1,602/oz at the close. We expect trading in gold to be more stable today and think prices will consolidate around the $1,600/oz mark. However, with four Fed representatives scheduled to speak and the minutes from the January FOMC meeting scheduled for release, investors could find grounds to update their rate assumptions for 2020 (markets are currently pricing in a roughly 80% chance of a 25 bp Fed rate cut in the first seven months of the year). Solid US data on mortgage applications, construction permits and housing starts in January could provide headwinds for gold.> High volatility in base metals prices continues. A downbeat mood prevailed on markets throughout the day yesterday. Trading volumes for base metals were modest, though volatility picked up. On the day, the 3m forward nickel contract lost 2.2%, while zinc gave up 1.2% and copper 0.7%. In addition, a d-o-d rise in LME stockpiles of copper (a net change of 5k tonnes) and nickel (2.4k tonnes) was registered yesterday. Sentiment has improved today, as the PBoC set a weaker rate for the yuan, showing markets it is willing to take new measures to stabilize the economy.GOLD BREAKS ABOVE $1,600/OZ, CLOSES 1.3% HIGHERGold managed a break above the psychologically important $1,600/oz level yesterday. Demand for safe-haven assets was fueled by fears over the effects of the coronavirus in the wake of Apple's press release on Monday and yesterday's weak ZEW index readings for Germany and the eurozone. The German economic sentiment index slid from 26.7 in January to just 8.7 in February, missing the consensus estimate of 21.5 by a wide margin, while the eurozone gauge dropped from 25.6 to 10.4.The ongoing rally in gold prices picked up steam following the open on Wall Street. After breaking through resistance at $1,591/oz, gold reached as high as $1,605/oz before slipping back to $1,602/oz at the close. The gold market largely ignored a rise in the Empire State manufacturing index from 4.8 in January to 12.9 in February, a reading above the consensus of 5.0. We expect trading in gold to be more stable today and think prices will consolidate around the $1,600/oz mark. However, with four Fed representatives scheduled to speak and the minutes from the January FOMC meeting scheduled for release, investors could find grounds to update their rate assumptions for 2020 (markets are currently pricing in a roughly 80% chance of a 25 bp Fed rate cut in the first seven months of the year). Solid US data on mortgage applications, construction permits and housing starts in January could provide headwinds for GH VOLATILITY IN BASE METALS PRICES CONTINUESA downbeat mood prevailed on markets throughout the day yesterday. Trading volumes for base metals were modest, though volatility picked up. On the day, the 3m forward nickel contract lost 2.2%, while zinc gave up 1.2% and copper 0.7%. In addition, a d-o-d rise in LME stockpiles of copper (a net change of 5k tonnes) and nickel (2.4k tonnes) was registered yesterday.Sentiment has improved today, as the PBoC set a weaker rate for the yuan against the dollar (7.0012), showing markets it is willing to take new measures to stabilize the economy. The next couple of days will see Chinese statistics on aggregate financing, new yuan loans and interest