Whats Up With Gold, Silver and Copper

On Tuesday morning base metals are trading substantially down at the London Metal Exchange taking cues from the equities. This morning Asian markets have also retreated following US trading on Monday. However, markets still saw glimmers of hope that China’s central bank would take actions due to its weak economic data, showing that copper imports for August declined 2.9 percent month on month in the face of sluggish downstream orders and weakening financing demand.

China remains the biggest problem at this point, the ECB seems to have tamed the EU for the time being and the FOMC is an odds on favorite for new QE later this week but China has not been immune to the global economic problems and they have landed flat in their laps at a very bad time.

Last week the Chinese President introduced an all new program of infrastructure construction to help kick start the slowing economy.

China’s industrial production remained at 8.9 percent last month from a year earlier, lower than market expectations while early morning New Yuan loans have increased and may provide recovery in base metals prices as the day progresses.

Copper rose to its highest level in four months on Monday, driven by the increased likelihood of more economic stimulus in China and the United States, two of the world’s top consumers of the metal. Building on Friday’s nearly 4 percent surge, copper prices pushed higher in relatively stronger volumes, after weaker import and industrial production data over the weekend from China reinforced expectations that Beijing will soon adjust policies to lift an economy mired in its softest period of growth in three years. In the United States, disappointing employment numbers last week increased the chances that the Federal Reserve will move this week to launch another round of bond buybacks, known as quantitative easing (QE), to stimulate the world’s largest economy, according to a Reuter’s poll.

From the eurozone, markets eagerly await the German Court ruling and Greek never ending drama as traders take profits as the shared currency has been posting smart gains in the last four trading session and may also support weakness in base metals during the day. A German constitutional court will rule on Wednesday whether Germany can contribute to the European rescue fund, which plays a crucial role in the European Central Bank’s plan to fight the region’s debt crisis.

As anticipations over QE3 measures have recently increased, longs have entered markets actively, but this kind of price increases is rather unstable from fundamentals perspective. In addition, rebounds in base metals have gradually neared resistance levels, and hence investors should be cautious that rebounds might be short-lived as of now.

Yesterday’s data showed that the US consumer credit has declined in first 11 months and has further added weakness in metals while the Japan machine tools are likely to remain weak. In the US today, the US small business confidence may improve slightly due to hopes of QE and general election nearing while the trade deficit of US may widen due to higher crude oil prices weakening the dollar.

While precious metals continue to trade strongly with gold and silver holding to recent record highs.

Precious metals edged higher today, paring losses from the previous session, with investors awaiting a key German ruling on the eurozone’s bailout fund and a U.S. Federal Reserve decision on possible measures to stimulate the economy. The chances of a QE3 announcement this week have jumped after disappointing U.S. employment data last Friday, sending spot gold to above $1,740 for the first time since end of February. Scrap continued to flow into Asia’s physical gold market as prices remained buoyed by market expectations for more stimulus measures.

Gold eased on Monday as investors took profits, but the metal stayed near a six-month high after last week’s disappointing U.S. payrolls data boosted hopes that the Federal Reserve could unveil new stimulus as early as Thursday. Gold rebounded on Tuesday and remains strong in Asian trading on Wednesday morning.

Silver futures prices have drifted lower at the early Globex on the back of weak Asian equities. Silver is more affected by the Chinese data then gold as it is two faced, industrial and precious metal.

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