HSBC HSBC Holdings PLC

Gold and base metal prices were trading close to multiyear lows in Asia on Monday, as the U.S. dollar strengthened amid rising expectations of a rate increase by the Federal Reserve next month while concerns grew about weak demand from large commodity consumer China.

Spot gold was trading at $1,093 per troy ounce during the Asian afternoon, close to its 5½ -year low in late July. The precious metal is marginally up from the opening price of $1,089.67 per troy ounce, but well below the $1,100 per troy ounce that it had traded above for more than three months.

"I expect gold prices to consolidate around this level as the chance of a rate increase would have by now been taken into account," says Jammy Chan, Hong Kong-based head of Greater China for Gold Bullion International, an institutional precious metals provider.

A firm U.S. labor market report issued late Friday has raised market expectations the Fed will soon raise rates. "In fact, if the positive tone to the data continues, the debate could quickly shift from the timing of the first hike to the second and subsequent ones," analysts at ANZ said in a note.

Any U.S. rate increase would further boost the dollar and weigh on the price of gold and base metals as they are priced in U.S. dollars.

The slide in gold prices could further support the pickup in physical demand from top consumer China seen since late July through the usually peak fourth quarter ending Dec. 31. That demand may culminate by Lunar New Year on Feb. 8, analysts say.

Chinese demand has firmed up as investors have sought to diversify their portfolios away from the country's volatile stock markets, marking a turnaround from last year when gold purchases tumbled because of anticorruption investigations and more lucrative potential returns on offer from equities. China's retail gold demand rose 7.8% in the nine months to September, Hong Kong-based Argonaut Securities said in a report.

China has also boosted its official reserves by 65 metric tons of gold in the past four months, Argonaut said. In October, China's official gold holdings increased by 16 tons from September to 1,723 tons.

However, China's influence on gold prices this year has been somewhat negated primarily by western investors withdrawing from gold.

Physical demand from India, the other significant consumer apart from China, has also been relatively muted during the current peak season for festival-related demand, which will culminate with the festival of lights, Diwali, on Nov. 11. Purchases by India's farmers have been hit by scanty monsoon rains, which has left them with less spare cash to spend on gold.

The impact of the dollar's rise extended to trading in base metals Monday, with prices of aluminum, copper and zinc hovering close to multiyear lows following weak October trade data from China.

"A stronger U.S. dollar is typically a downside risk for commodity prices, which helps to explain the selloff we have seen in key base metal prices in recent days," said Paul Bloxham, HSBC's chief economist for Australia and New Zealand.

Three-month aluminum inched up by $4 after a sharp fall in the previous session and was last at $1,527 a ton, close to a six-year low recorded at the end of October. China's aluminum and aluminum product exports fell to 330,000 tons in October, the lowest level since February 2014. China is the world's largest producer of aluminum and has been forced to increase exports as domestic demand has slowed. A fall in Chinese exports shows there are now fewer takers globally, which may worsen a supply glut.

Copper rose $7 to $4,997 a ton, but remained close to a six-year low reached in late August. China's copper imports in October fell 7.7% from the preceding month to 420,000 tons.

Write to Biman Mukherji at biman.mukherji@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

November 09, 2015 04:25 ET (09:25 GMT)

HSBC (NYSE:HSBC)
Historical Stock Chart
From Mar 2024 to Apr 2024

HSBC (NYSE:HSBC)
Historical Stock Chart
From Apr 2023 to Apr 2024