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September 7, 2012 5:58 pm
The prospect of fiscal stimulus in China and monetary easing in the US boosted metals prices, lifting copper to a four-month high above the $8,000 level.
The rally came as risk appetite among commodity traders improved thanks to the European Central Bank’s announcement on Thursday, which signalled its commitment in supporting the euro.
Industrial metals prices rallied on the Chinese government’s approval for Rmb1tn in infrastructure spending over the next few years. Weak demand in China, the leading consumer of raw material, has depressed commodities over the past few months.
The approval by the National Development and Reform Commission, a top central planning agency, of rail, highway construction, waterway and water treatment projects fuelled hopes of a recovery in demand for industrial raw materials.
“The market saw a boost of confidence,” said Leon Westgate at Standard Bank in London. He added that the numbers came ahead of Chinese economic data releases, including industrial production and retail sales figures for August. “The key is whether it can hold on to this rally,” he said.
Copper for three month delivery on the London Metal Exchange jumped 3.8 per cent to $8,000 a tonne, up 5.4 per cent on the week. Technical buying also helped the red metal, after the benchmark rose above the 200-day average of $7,889 a tonne and another key level of $7,906.
Iron ore, which has been sliding since April, also saw an uplift. The benchmark iron ore price for material containing 62 per cent iron delivered in China, recovered from $88 a tonne to $90.75 a tonne, according to Platts, the price reporting agency.
Precious metals rallied on expectations of increased liquidity. Gold, which had been buoyed by the ECB’s plans to buy eurozone debt, gained further ground on weaker than expected US employment figures on Friday. August non-farm payroll data which showed that 96,000 jobs were created, against a consensus forecast of 125,000, increased the likelihood of quantitative easing by the US Federal Reserve.
Gold rose 1.9 per cent to $1,734.26 a troy ounce, up 2.6 per cent on the week. The $1,700 level has been regarded as a technical resistance, and traders are now focused on next week’s Federal Open Market Committee meeting, where a decision on monetary policy is expected to be taken.
With buying in the physical gold market still weak, “additional stimulus presents the catalyst gold requires to set new intra-year highs, but given gold’s track record this year, it is likely to give up its gains quickly if the market is disappointed,” said analysts at Barclays.
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