Gold, Oil Up, Copper Down

Sydney, Nov 5, 2007 (ABN Newswire) - It sounds like a bit of a re-run of the end to the previous week.

Gold and oil firmer as the US dollar falls on growing nervousness about the continuing impact of the subprime crisis and its impact on the health of financial companies in the US and Europe. The US dollar weakens, but not all commodity prices rise, only the speculators favourites in gold, oil and silver.

And so it was last Friday. Gold rose 2% to close above $800 an ounce in New York for the first time since 1979, oil finished above $US95 a barrel, but copper suffered its biggest fall in nearly three months as the price of industrial metals showed a worrying weakness.

December gold futures on Comex rose $US14.80 or 1.9% Friday to $US808.50 an ounce, the highest closing price for a most-active contract since January 21 1980, the day the metal reached an intra-day record of $873. That boosted the week's rise to 2.7% for the futures.

Spot gold jumped above $US800 for the first time in 27 years, gaining $US17.90 or 2.3% to $US805.20 an ounce on Comex.

December silver futures on Comex rose 27.4c to $US14.599 an ounce, the highest closing price since February 27.

The US dollar weakened Friday after the better than expected jobs figures had caused early firmness. Worries about the health of big banks and rumours, later confirmed, that the head of Citigroup was walking the plank voluntarily this weekend, saw the dollar sold off.



Oil also gained on the jobs figures and on the continuing low level of US oil stocks.

December West Texas Intermediate on the Nymex exchange rose to a record close of $US95.93 a barrel Friday.

The US Labor Department reported Friday that employers added 166,000 jobs to payrolls last month, the biggest increase in months and double all forecasts, pushed the currency higher.

October's unemployment rate held steady at 4.7% because people again stopped looking for work, a worrying trend.

Separately, the US Commerce Department reported that factory orders rose 0.2% in September, better than the 0.4% fall analysts were expecting.

Some economists said these figures had wiped out any suggestion the US would see another interest rate cut this year.

In London, December Brent crude rose $US1.80 to $US91.52 a barrel on the ICE Futures exchange, maintaining the now usual discount.


 

But while gold is attracting the headlines, the performance of copper, which has been the most important metal for the local market over the past two years, continues to weaken

Copper dropped on Friday, making for the biggest weekly loss in 11 weeks, because stocks are rising.

London Metal Exchange monitored stocks rose 1,425 metric tonnes to 168,425 tones, the highest level since late last April.
Copper prices fell 6% last week. It has been a big driver for BHP Billiton, Rio Tinto and Oxiana, and even gold producers like Newcrest, and a host of smaller stocks. Nickel has also been spectacular, but is now around $US23,000 a tonne from its all time high. That didn't stop that huge $3.1 billion for Jubilee Mines from Xstrata last week.

Lead, zinc and tin have also been strong this year but have lost some ground recently, while aluminium remains mixed to a bit firmer in recent days.
Certainly the concerns about what's happening in the US economy seem to have a depressing impact on prices, despite the continuing signs of strong activity in China and other emerging economies.

The weakening US dollar hasn't seen the offset rises in copper and zinc and lead that we saw in August and September.

Comex December copper fell 3.75c to $US3.3250/pound after touching $3.30, the lowest since September 12. Last week's was the fourth straight weekly fall, but the biggest since August 17 as the credit freeze struck.



Stocks monitored by the LME rose 28% in October, a worrying sign. It's what happened a year ago when China stopped buying. 

The difference now is that the world economy is more fragile, especially financial markets and many speculators (hedge funds and other non trade investors in commodities) are finding it tougher to finance positions because of the higher cost of money and reluctance of banks to continue lending.

Copper prices rose by just over half a per cent on those US job numbers for last month, then weakened in the afternoon as the gloom about the health of banks and other financial companies hit.

On the LME, three months copper fell $US70 to $7,435 a tonne, or $US3.37 a pound. The metal is still up 17% this year because of China's strong buying levels from May through September.

Besides the stocks concerns, the most probable reason for the weakness in copper and other base metals can be found in the surge in gold since August.

Gold has been restored as a store of value for nervy investors worried about the weak US economy, rising inflation, rising oil prices and Middle East tension. The weak US dollar has finally been pushing the metal higher. Gold rose 23% last year and could reach all time highs if the present set of factors continue for the next few weeks.

That looks like helping base metals to weaken further. The credit freeze has forced many investors (speculators) be more selective in choosing a commodity or financial product in which to play.


 

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