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Gold rises amid deteriorating economic indicators

Gold prices gained during the week ended Oct. 18 amid mounting investor concerns over signs of a deteriorating environment in the world's two biggest economies.

In its latest Beige Book economic report, the U.S. Federal Reserve said the economy grew at a "slight to modest pace" in recent weeks, while the manufacturing sector's performance suffered from "persistent trade tensions and slower global growth." This came as Fed officials considered cutting interest rates at their next meeting, scheduled for Oct. 29-30. Advance data from the U.S. Census Bureau released the same day as the Beige Book showed U.S. retail sales in September dropped 0.3% from August, falling for the first time in seven months.

Affected by the trade tensions with the U.S., China's GDP in the third quarter grew 6% year over year, according to official statistics, slowing from 6.2% in the second quarter. This was below the 6.1% estimated by analysts in a Reuters poll, which would have been the slowest rate since the first quarter of 1992, the earliest quarterly data on record.

Looking to resolve trade tensions between the two countries, China wants to have more talks before it is ready to sign an agreement, first made verbally, that would see China increasing agricultural purchases from the U.S. in exchange for a limited removal of tariffs, Bloomberg reported. Chinese Commerce Ministry spokesperson Gao Feng said Chinese officials are hammering out the text of an agreement on trade in close contact with U.S. negotiators, reiterating the government's stance of aiming to end the trade war and remove all tariffs on U.S. products.

Price ring

Amid increased auto-catalyst demand and a lack of supply, palladium continued rising in the week ended Oct. 18 to US$1,763 per ounce, after hitting an all-time high of US$1,779/oz on Oct. 16. The metal closed at US$1,700/oz on Oct. 11.

After a bumpy ride in the week, London Metal Exchange gold closed the week higher at US$1,490.40/oz, compared with US$1,484/oz at the end of the previous week. Silver was nearly flat, closing the week at US$17.54/oz.

The S&P Global Platts IODEX 62% iron ore CFR North China dropped to US$85.70/t, from US$92.86/t on Oct. 11.

In base metals, copper fell from US$5,762 per tonne to US$5,750/t on a weekly basis. Zinc rose to US$2,487/t from US$2,440/t, and lead increased to US$2,209/t from US$2,177/t in the prior week.

Nickel prices crashed to US$16,450/t, from US$17,990/t in the previous week. Citi analysts said the physical market had become disconnected from the futures market, while a premium that Chinese steel mills pay for nickel to make stainless steel flipped into a discount for the first time ever, according to Forbes.

"The fact they are falling sharply is a strong signal that the exchange backwardation is not matched by physical fundamentals," Citi analysts said about the Chinese mill premiums.

Aluminum edged up to US$1,728/t from US$1,720/t.

Talking points

Australia's ANZ Research said in an Oct. 18 note that it believes that precious metals will continue to receive support from elevated macro and geopolitical risks with an undersupplied market pushing platinum group metals prices higher.

"Palladium continues to show few signs of retreating, as fundamentals remain strong. In its four-year rally, retracements are getting shorter," analysts at ANZ wrote in an Oct. 17 note, adding that environmental laws in Europe and China are tightening and driving up demand coming from the auto-catalyst sector.

Analysts also said the current supply and demand environment is conducive to higher palladium prices in the medium term. "So we see this rally continuing for the forecastable future. The risks of increased supply or of demand substitution are low in the short term, leaving the market structurally tight."

Speaking of industrial metals, ANZ analysts said copper's constrained supply will give support to its prices in the long run, even though there is "little hope of a material recovery" across the broader sector amid decelerating industrial activity and growing concern about global economic growth.

Financings

Russia's PJSC Acron took applications for a placement of 10 billion rubles' of 3.5-year bonds, set for Oct. 25.

U.S. Steel Corp. priced its private offering of US$300 million of senior convertible notes due 2026 and granted a 30-day option to the initial buyers to purchase up to an additional US$50 million of notes.

PJSC Uralkali placed US$500 million of five-year eurobonds at 4%.

Polymetal International PLC secured a 10-year, fixed-rate loan of US$500 million with Russia's state-owned Sberbank.

Altech Advanced Materials AG plans to raise US$100 million.

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.