Kitco Market Nuggets

Market Nuggets: Harbor Intelligence: Physical Copper Demand to Remain Lackluster until 400 cts/lb

28 April 2011, 03:37 p.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Global refined copper demand is slow in large part due to China’s reluctance in purchasing copper and with the summer lull coming up, Harbor Intelligence says. Harbor does not expect demand to rise in the short term unless copper falls back to 400 cents a pound. Copper has been trading between 420 and 450 cts/lb recently, but Harbor believes prices will begin to fall beginning in May. “Seasonality is consistent with prices going south of 420 cts/lb in the next month,” Harbor says. “We expect 400 cts/lb to be a strong support level.”

By Alex Létourneau of Kitco News; aletourneau@kitco.com

Market Nuggets: Credit Agricole CIB: Gold Market 'On Course For Further Gains'

28 April 2011, 11:56 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Gold is “on course for further gains as it is difficult to find a reason to sell it,” says Credit Agricole CIB.Against a background of inflation concerns (higher oil prices), sovereign-debt issues/restructuring fears and lax monetary policy (currency debasement), the dips in gold should be well supported as an upside chart target of USD1,550/oz becomes the next objective,” says a report from the bank. A weaker U.S. dollar and ample liquidity have fanned worries over inflation, with gold being seen as a hedge and/or insurance in the absence of a sustained global economic recovery, Credit Agricole CIB says. Nevertheless, the bank offers some caution on silver due to the rise in silver options’ implied volatility, after a gain of 21% and 47% this month and this year, respectively.

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: Credit Agricole CIB: Aluminum 'Preferred' Pick Among Base Metals

28 April 2011, 11:42 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Credit Agricole CIB considers aluminum to be its “preferred” pick of the base-metals complex. The bank anticipates range-bound markets for now, given a number of conflicting factors. “The downside should be restricted by peak seasonal demand considerations but the upside also looks capped for a number of reasons – geopolitics, sovereign debt, high oil prices, monetary tightening,” says a report from senior metals analyst Robin Bhar. “However, still-ample liquidity, USD weakness, inflation/ debasement concerns and bullish optimism over the longer run are still seen as broadly supportive factors.”  Credit Agricole CIB favors aluminum as “our preferred exposure, underpinned by rising cost pressures (higher oil prices), substitution gains at the expense of copper and concerns over power availability in China.”

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: BNP Paribas: Fed Gives ‘Green Light’ To Dollar Weakness, Although Valuations ‘Stretched’

28 April 2011, 09:13 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- While Wednesday’s Federal Reserve statement and press conference essentially gave the market a “green light” to keep selling the dollar, trading now may become “more two way” at least in the near term, says the BNP Paribas forex team. The Fed signaled continued accommodative monetary policy. “The broad case for USD weakness remains intact,” BNP says. Still, “In the short term, valuations and positioning in many currencies are looking extremely stretched, and options markets are signaling some discomfort…,” BNP says.Indeed, investors are unlikely to be blindly chasing currencies through levels such as 1.50 on EURUSD and 1.10 on AUDUSD -- particularly with holidays in the U.K. tomorrow and in many centers on Monday.” But beyond the weekend, there is scope for further USD weakness for as long as the reserve manager bid remains solid.” Metals traders closely monitor the forex market since movements in the dollar often affect the base- and precious-metals complexes alike.

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: MF Global: Further Energy Inflation Could Slow Base Metals In Second Half Of Year

28 April 2011, 08:51 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- MF Global suggests that by continuing to signal accommodative monetary policy, the Fed is allowing further commodity inflation that could slow the economy and ultimately hurt base-metals prices later in the year. The immediate impact was a bounce for base metals in Asian trading in response to a weak dollar after the Fed statement. Analyst Edward Meir says that by standing pat on monetary policy, the Fed allowed investors to slam the dollar, which will usher in further commodity buying and lead to inflationary pressures. He suggests that a tighter stance by the Fed might have resulted in a modest uptick in interest rates, but “hardly enough to make a difference in the recovery.” This would have “revived the dollar and derailed the dangerous energy-led inflationary spiral” that could slow the global economy, Meir says. “For this reason, we are quite wary about metal prices moving higher going into the second half of the year.”

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: Barclays Does Not See Fed Rate Hike Until July 2012, Boding Well For Gold

28 April 2011, 08:34 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Barclays Capital looks does not look for the Federal Reserve to hike interest rates until the summer of 2012 and says the loose monetary policy in the meantime should remain supportive for gold. Prices rose after a Wednesday FOMC statement that said rates will remain low for an “extended time,” with gold hitting a fresh record overnight and silver also up sharply. “Our economists do not expect an increase in the federal funds rate until July 2012, which bodes well for gold set against a backdrop of ongoing geopolitical uncertainty, sovereign debt concerns and a weaker dollar,” Barclays says.

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: HSBC: ‘Heart Of The Gold Rally’ Is Concern About Inflation From Accommodative Fed Policy

28 April 2011, 08:21 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Gold has rallied since Wednesday’s FOMC meeting and Fed Chairman Ben Bernanke’s press conference despite Fed comments suggesting inflation, while rising in recent months, will stabilize.  “We believe that at the heart of the gold rally is a concern on the part of many investors that despite Fed assurances that inflationary pressures are relatively subdued, accommodative monetary policies will ultimately lead to higher consumer prices,” says HSBC. “Also, Mr. Bernanke referred to the economy as expanding only moderately. The market took Mr. Bernanke’s comments as an indication that accommodative monetary policy would persist for some time.” The Fed did not announce a third round of quantitative easing beyond the second one scheduled to end in June. “If the markets rule out a QE3, this could help constrain the gold and silver rallies but would be unlikely to reverse the rallies, we believe,” HSBC says.

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: MF Global Raises Upper End Of 2011 Gold-Forecast Range To $1,650/Oz

28 April 2011, 08:08 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- MF Global is hiking its upside objective for gold this year to $1,650 an ounce after Wednesday’s indication from the Federal Reserve that interest rates will remain low for a while yet. In its 2011 outlook several months ago, MF Global looked for a $1,250-$1,550 range, with a peak around midyear. “After the disappointing spending cuts of the Congressional FY11 budget deal secured on Apr 11th, we noted that we were considering raising our forecast upper range based on a lack of spending-cutting credibility by both the President and House Republicans,” says a report from analyst Tom Pawlicki. “We didn’t make an increase because we thought that the end of QE2 (quantitative easing) could still lead to incremental tightening and thus price pressure. However, yesterday’s indication from Fed Chairman (Ben) Bernanke regarding the maintenance of accommodative monetary policy at least through Sep is more than we can accept and still argue for a potential $1,550 peak. Therefore, we’re incrementally raising our upside objective to $1,650 and pushing back our time target for a peak from mid-year to around Sep.”

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: R.J. O’Brien: Gold Hits Record High As Dollar Index Tumbles In Wake Of Fed

28 April 2011, 08:04 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Base and precious metals are starting the day higher as the dollar remained on the defensive after the Federal Reserve Wednesday showed no inclination to change its accommodative monetary policy. Gold went on to a fresh record high overnight as the dollar index fell to its lowest level since July 2008, says Janet Mirasola, managing director with R.J. O’Brien & Associates. “The lack of confidence in the U.S. dollar and the reluctance by the Fed to raise interest rates will keep commodity prices buoyant without need for fresh fundamental support,” she says. Around 7:45 a.m. EDT, Comex June gold was $13.30 higher at $1,530.40 an ounce after hitting a most-active-contract record high of $1,535.10. July silver was up $2.493 to $48.48 an ounce. July copper was up 2.20 cents to $4.2685 a pound.

By Allen Sykora of Kitco News; asykora@kitco.com

Market Nuggets: Harbor: Physical Demand For Primary Aluminum Strong Globally

28 April 2011, 07:53 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) -- Physical demand for primary aluminum has remained strong around the globe, with European premiums hitting a historical high, says Harbor Intelligence.The demand is also reflected by shrinking contangos, increases in cancelled warrants and longtime highs in aluminium prices. “There is no doubt that this spike in physical demand has an important seasonal component (start of second quarter), exacerbated by booming underlying demand and restocking needs,” Harbor says. “The spike in demand and prices we have seen should have historically ended last week but there is also a chance that it could extend for up to three more weeks. If this period is actually extended, we could temporarily see $3,000 (per metric ton, 136 cent/pound) before the end of the first half of May. Nevertheless, we continue to believe we are not in a period for consumers to buy forward (hedge for future needs), but rather in a positive environment for producers to sell forward IIIQ output.” Harbor looks for prices to fall back toward $2,500 per ton sometime in the third quarter before hitting $3,000 on a sustainable basis by the fourth quarter. Meanwhile, the duty-paid premium in Rotterdam increased to $210-235 per metric ton CIF from previous $200-230, reaching its highest level since at least 1998.

By Allen Sykora of Kitco News; asykora@kitco.com