Metals on the Move as Dollar Takes a Hit

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Metals came back from the long weekend with a bang as money poured into gold and copper.

Globex’s gold futures (@GC) traded almost 333,000 contracts yesterday, the busiest session since October 11. Prices also advanced 1.7 percent, their biggest gain of the year. Copper futures (HG) saw the greatest volume since November, ripping more 2.5 percent to their highest level since early September.

No single catalyst seemed to explain the move, but some positive forces have emerged in the sector. First is optimism about smoother relations between the U.S. and China as a March 1 tariff deadline approaches. While incremental reports don’t suggest a major breakthrough in the near-term, President Trump has indicated he will extend the time frame. Investors often use copper as a proxy for global economies — especially China’s.

Gold futures (@GC) showing volume and “Line at Price” indicator.

Second, analysts have suddenly jumped on the bandwagon. Morgan Stanley aggressively upgraded copper miner Freeport-McMoRan (FCX) on February 13, seeing prices for the metal rally more than 14 percent on limited supply. Citi followed today. Last week, Goldman Sachs also went bullish on rival Southern Copper (SCCO).

Next, the U.S. dollar has been falling in the last week. That could impact gold and copper because they’re priced in greenbacks and generally move inversely to the currency. In addition, Federal Reserve officials (Lael Brainard and Loretta Mester most recently) have veered away from wanting to raise interest rates. That’s often associated with a weaker dollar and higher metals prices..

Tuesday also saw a large bullish options trade in South African gold miner Anglogold Ashanti (AU):

  • Roughly 13,000 July 14 calls were bought for about $1.72.
  • At the same moment, some 13,000 July 13 puts were sold for $0.53.

This was a bullish synthetic trade, which will mimic owning about 1.3 million AU shares for a fraction of the cost. Long calls fix the price where a security can be purchased, so they profit to the upside.

Short puts generate income and also make money when shares rally. However, they have significant risk because the investor is essentially promising to buy shares at a certain price no matter how low they may be at the time. (In this case, it’s $13.)

AU surged 10 percent to $14.98. That was both its biggest daily gain and its highest closing price in over two years.

Anglogold Ashanti (AU) with 50- and 200-day MAs, plus one-day change.
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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.