Dollar weakness could provoke metals rally

Dollar weakness could provoke metals rally
By Chris Flood
Copyright The Financial Times Limited 2006
Published: November 28 2006 02:00 | Last updated: November 28 2006 02:00


Precious and base metals enjoyed continued support from the weakness of the dollar yesterday with traders asking if this could fuel a year-end price rally.

"Metals could potentially continue to profit from dollar weakness over the coming weeks," said Peter Fertig, of Dresdner Kleinwort.

Dollar weakness was considered a key factor in pushing gold to $641.75 a troy ounce, a near three-month high, before it eased back to $639.10, up 0.2 per cent on the day.

Silver was 0.4 per cent firmer at $13.41 a troy ounce but platinum fell 3.8 per cent to $1,140 a troy ounce amid profit-taking after rumours of an exchange traded fund launch pushed the price to record levels last week.

Nickel hit a record $34,150 a tonne but pared its gains to end 0.3 per cent higher at $33,550 while zinc eased0.6 per cent at $4,485 a tonne.

Copper hit $7,240 a tonne after a fall of 3,850 tonnes in LME stocks, with sentiment supported by news on Friday that Hindalco, of India, had suspended operations at one of its smelters due to a shortage of copper concentrate feed.

"Hindalco's smelter closure is a sign that the process of concentrate de-stocking may no longer be sustainable [and] further smelter production cuts would be extremely bullish for metals prices," said Barclays Capital.

Copper ended 0.8 per cent lower at $7,095. Some traders think it is too early to call a change in sentiment because speculative long positions have been greatly reduced and dealers are expected to de-risk their books approaching year end.

John Kemp, of Sempra Metals, said that instead of betting on price movements for the three-month contract, funds were increasingly trading along the structure of the price curve. He added that since copper prices peaked in May, the price for the December 2006 contract had fallen about $1,000 a tonne while prices for copper in mid-2011 were up just over $600.

Oil prices struggled for direction in spite of comments from Saudi Arabia signalling that a further cut in output by the Organisation of the Petroleum Exporting Countries was likely. ICE January Brent gained 41 cents to close at $60.44 a barrel. Nymex January West Texas Intermediate added $1.08 to settle at $60.32 a barrel.

On Saturday, Ali al-Naimi, Saudi Arabia's oil minister, played down the importance of crude prices in Opec's thinking but said the cartel would cut output again in December if the cut in supply in November of 1.2m barrels a day failed to balance the market. "The price is irrelevant," said Mr al-Naimi: "What is important is stability in the market and the balance between supply and demand."