Metals Price Watch: Fed’s Tapering Comments Weigh on Metals

By:
on Jun 21, 2013
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The stated intention of the US Federal Reserve to reduce debt purchases from the current $85 billion a month in the current year has weighed on prices this week but some metals have retraced some of the losses by Friday, June 21. Copper has recovered from a 20-month low but remains on track for another one-week low on fears of a slowdown in China’s economic growth.

**Gold and Silver**
The gold price fell to $1,268.89 an ounce, the lowest level in nearly three years, on the London Metal Exchange but later recovered some losses to trade at 1,294.41, about 1.6 percent up, as of 15:13 GMT. Still, the rise has failed to offset yesterday’s slump and gold is now 7 percent down from last Friday, its biggest drop in a week since it took a dive from record highs in September 2011.

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Quantitative easing was massively stimulative for precious metals, and we are now seeing that process going into reverse,” Natixis analyst Nic Brown said, as quoted by Reuters. “The effects of QE had been hugely positive for precious metals because they weakened the dollar and pushed medium-term interest rates to abnormally low levels, which removed most of the negative carry associated with holding gold.”

Yesterday’s price drop has spurred increased demand for gold from the world’s second biggest consumer of the metal – China, traders have reported. Demand from the No. 1 consumer India, however, has remained subdued despite the drop, as depreciation in the rupee has mitigated its effect.
The silver price also fell to its lowest level since September 2010 at $19.35 an ounce, before rebounding to $19.88 an ounce, where it presently resides.

The palladium price has gained the most among precious metals today, rising to $674.75 an ounce, a 2.6 percent increase.
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**Base metals**
Base metals also suffered a serious blow yesterday on account of Fed’s tapering plans. Three-month copper closed at $6,770 a metric ton on the London Metal Exchange on Thursday, while today it recorded an intraday low of $6,692, its weakest performance since October 2011, before bouncing back to 6,810 a ton.

Stephen Briggs from BNP Paribas has identified two factors supporting the price.
“One is that there appeared to be some intervention by the central bank in China to stabilise the situation with the liquidity crunch,” he said, as quoted by Reuters. “Also, losses have been pretty substantial in the last few days, and you always get some kind of bounce.”
The aluminium price has continued its decline from yesterday, falling in London to $1,787 a ton, its lowest in more than three years. The metal later recovered to $1,793 a ton.
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