LME zinc cancelled warrants have seen a remarkable surge, climbing by 49kt yesterday to reach approximately 107kt. This marks their highest level since October 2017. Commodity analysts Ewa Manthey and Warren Patterson from ING emphasize the significance of this increase, which reflects a robust demand for physical metals. Let’s dive deeper into what’s driving this trend and its implications for both zinc and gold markets.
Demand Drives Zinc Warrants
The majority of the recent zinc cancellations originated from Singapore warehouses, signaling strong demand in Asian markets. Cancelled warrants now account for approximately 41% of the total stock in LME warehouses. This sharp increase showcases a rising appetite for physical metals, evident in the forward curve as well.
Currently, spot zinc prices hold a premium of $5.2 per tonne over the 3-month contract. Although this is below October’s high premium of $58 per tonne, it still reflects the growing tightness in the market.
Factors Impacting the Zinc Market
This uptick in zinc warrant cancellations highlights the importance of inventory dynamics in LME warehouses. Higher physical demand and forward curve premiums underline the current bullish sentiment. This shift could be a result of economic recovery in key markets like Asia.
Gold Prices and Market Dynamics
Gold prices are currently trading flat after significant declines earlier this week. Investors are balancing a mix of positive and negative factors. A critical driver is the growing likelihood of further interest rate cuts by the US Federal Reserve. The CME’s Fed Watch Tool indicates a 68% probability of a 25-basis-point cut at the next meeting, up from 56% last week.
Challenges for Gold
Despite this, higher-than-expected inflation is tempering market enthusiasm. The US Personal Consumption Expenditure (PCE) index rose to 2.8% year-over-year in the latest reading, slightly above last month’s 2.7%. This sticky inflation could weaken the Fed’s case for additional rate cuts. Additionally, geopolitical uncertainties in the Middle East and Europe remain unresolved, supporting safe-haven demand for gold.
Conclusion
The surge in LME zinc cancelled warrants underscores the robust demand for metals in the physical market, particularly in Asia. On the other hand, gold prices remain flat, influenced by both rate cut expectations and inflation concerns. These developments highlight the complex interplay of global market forces.
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