Stronger U.S. Dollar, Low Holiday Volume Weigh on Copper Demand

Comex copper futures traded lower on Tuesday in reaction to a stronger U.S. Dollar and below average volume due to the Lunar New Year in top metals user China. Prices in London eased for a second day while the Shanghai Futures Exchange remained closed until Thursday, February 22.

May Comex High Grade Copper futures settled at $3.2135, down $0.0550 or -1.68%.

The U.S. Dollar rallied for a second day on short-covering in response to higher Treasury yields and position-squaring ahead of Wednesday’s release of the latest Fed meeting minutes. A stronger U.S. Dollar tends to be bearish for dollar-denominated commodities like copper because it often reduces foreign demand.

Gold

Gold prices fell on Tuesday, trading near a one-week low as the U.S. Dollar recovered from a three-year low hit last Friday. Rising Treasury yields helped make the dollar a more attractive investment. Additionally, investors awaited the minutes of the U.S. Federal Reserve’s January policy meeting for clues on the pace of interest rate hikes this year.

April Comex gold settled at $1331.20, down $25.00 or -1.84%.

In addition to higher yields on bonds which make gold a less attractive investment because it pays no interest, the absence of Chinese buyers from the market put further pressure on the precious metal.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures settled higher on Tuesday after posting a two-sided trade during the session. Early in the trading session, U.S. crude was supported by pipeline reductions in Canada. Brent crude oil eased on the back of a dip in Asian stocks and a stronger U.S. Dollar.

While both crude benchmarks continue to derive support from increased expectations of tighter supply later this year, most of late session rally was due to position-squaring ahead of Wednesday’s American Petroleum Institute’s inventories report.

Traders also said that the oil market is likely to react to the Fed minutes due to be released on Wednesday. Hawkish Fed minutes could drive the dollar higher, which could put pressure on dollar-denominated crude oil futures.

Natural Gas

Natural gas futures rose on Tuesday as investors priced in the possibility of colder weather returning to key demand areas during the first week in March.

April Natural Gas futures settled at $2.649, up $0.051 or +1.96%.

After hitting its lowest level in nearly two years last week, natural gas rose to its highest level since February 9 early Tuesday.