Commodities Daily - May 25, 2020

> Gold trading around $1,730/oz as focus remains on geopolitical tension. Tensions between the US and China are rising, particularly after the US announced sanctions against 33 Chinese companies and government organizations on Friday. Statistics on ETF and hedge fund positioning show that investment demand for gold remains strong. Today should be a relatively quiet day given the holiday in the US and UK. Germany's Ifo business climate index released this morning showed a slight improvement thanks to the easing of quarantine measures.> Prices on base metals consolidating following strong trade data from China. Premier Li Keqiang made an opening-day address to China's National People's Congress, which got underway on Friday. Investors were initially downbeat over the lack of a GDP target for 2020 and the moderate monetary policy that China is intending to pursue this year. This sent prices on base metals temporarily lower. However, quotes are recovering so far today thanks to support from trade data showing that Chinese imports of copper concentrate rose 23% y-o-y to 2 mln tonnes in April.GOLD TRADING AROUND $1,730/OZ AS FOCUS REMAINS ON GEOPOLITICAL TENSION Gold prices advanced only slightly (0.4%) on Friday despite the significant escalation in tension between the US and China. On Friday evening, the US announced sanctions against 33 Chinese companies and government organizations. The measures target companies accused of taking repressive measures against the ethnic minority Uyghurs and also those involved in developing weapons of mass destruction and military technology. However, if China passes its proposed Hong Kong security bill more sanctions could be forthcoming. We recall that a controversial extradition bill triggered large-scale protests last year. This past weekend protests re-emerged, which resulted in the Hong Kong police using tear gas against the protesters. The rhetoric coming from Chinese officials remains fairly harsh. Over the weekend, Foreign Minister Wang Yi said that the US was pushing toward a "new cold war." Meanwhile, the official yuan fix keeps drifting lower, a turn of events that tends to support gold. Investment demand for gold from Western ETFs remains high. Over the last 21 days funds have increased purchases, which, according to Bloomberg data, has pushed total holdings up to 99.5 mln oz. Open net long positions of hedge funds are also high at 173k contracts, although short positions are also growing, having reached 24.5k. Today should be a relatively quiet day given the holiday in the US and UK. Germany's Ifo business climate data (79.5 in May versus 74.2 in April) released this morning showed a slight improvement thanks to the easing of quarantine measures. ICES ON BASE METALS CONSOLIDATING FOLLOWING STRONG TRADE DATA FROM CHINADownbeat sentiment prevailed in base metals markets on Friday. The sector saw losses across the board except for zinc. This was largely due to the rhetoric in Chinese Premier Li Keqiang's address to the National People's Congress. In particular, he announced that the government has opted not to issue a GDP target for this year, although the 6% unemployment target for this year was reiterated. The main priority for policymakers will be the labor market and supporting employment. To this end, plans are being developed to create at least 9 mln new jobs. Base metals investors took particular note of fiscal stimulus plans (the government plans to spend 8.4% of GDP on a fiscal package for the economy), which will come not only from tax breaks but also issuance of special bonds by local governments (up to $530 bln) and also bonds aimed at alleviating the effects of the virus ($141 bln). The transport and infrastructure sectors - two major consumers of metals - are expected to benefit the most from the state support. Meanwhile, China's monetary policy remains moderate: there are no plans to carry out aggressive rate cuts or to actively increase lending. This morning, prices on base metals are recovering to the levels where they traded in the middle of last week. Support is coming from positive trade data showing that Chinese imports of copper concentrate rose 23% y-o-y to 2 mln tonnes in April. Early tomorrow morning will see data on Chinese industrial profits for April.