A little profit taking has calmed the metal markets, after what one commentator called last week’s “liquidity party”.
The Federal Reserve (the US central bank) did not disappoint the bulls. It promised to buy some $40 billion of mortgage-backed securities (the ones that caused trouble a couple of years back) every month, until there was “substantial” improvement in the US employment market – a very subjective measure of when to stop. Analysts had been talking of QE3 (as in third round of quantitative easing) before the Fed moved. Afterwards one wag called it “QE infinity”.
The Fed’s move echoed the European Central Bank’s “unlimited” commitment of a week earlier, and means that there is plenty of money to push up commodity (including base and precious metal) prices. It is to be hoped that this money also boosts economic activity to the point of boosting physical demand for raw materials.
For the time being the news is not good, which is presumably why the Fed acted. Industrial production in the US declined by 1.2% between July and August, having risen by 0.5% between June and July. The Fed added that manufacturing output had declined by 0.7% between July and August (to stand at 94.1 when 2007 = 100), having risen by 0.4% a month earlier. Nevertheless, August 2012 figures were up on August 2011, industrial production by 2.8%, manufacturing by 3.8%.
Industrial capacity utilisation in the US stood at 78.2% in August, down from 79.2% in July, but up from 77.1% in August 2011, even if capacity had grown by 1.4% during the 12 months.
But better news may be around the corner. The preliminary figure for the University of Michigan’s index of consumer sentiment in September was 79.2. This was better than the previous month’s number of 74.3, and well above the markets’ expectations of around 74.
Expectations for the economy of the eurozone have also improved. The European economic research centre ZEW’s indicator of economic sentiment for the zone has risen by 17.4 points to minus 3.8 (so it is still weakening, but much less quickly). For Germany the indicator of economic sentiment has improved by 7.3 points to minus 18.2.
But the ZEW indicator of for the current economic situation was down 1.2 points in September to minus 76.3 for the eurozone, and down 5.6 at minus 12.6 for Germany.
On the London Metal Exchange, copper for delivery in three months was trading at around $8,075 per tonne earlier this week, up from $7,667 a week earlier. Stocks of copper held in warehouses approved by the exchange edged down to 214,600 tonnes earlier this week from 218,800 tonnes a week earlier.
Three month aluminium was being quoted at around $2,054 per tonne earlier this week, up from $1,947 a week earlier. LME stocks amounted to 4,862,825 tonnes down from 4,878,475 tonnes a week earlier.
Three month aluminium alloy stood at around $1,905 per tonne earlier this week, well up from $1,785 a week earlier; LME stocks declined to 81,920 tonnes from 83,660 tonnes a week earlier.
Three month nickel was trading at around $16,739 per tonne, up from $16,229 a week earlier. LME stocks rose to 120,810 tonnes, from 119,724 tonnes a week earlier.
Three month zinc was holding at around $1,997 per tonne earlier this week, up from $1,881 a week earlier. LME stocks stood at 933,100 tonnes earlier this week, down from 949,550 tonnes a week earlier.
Three month lead was quoted at around $2,115 per tonne earlier this week, up only slightly from $2,004 a week earlier. LME stocks stood at 300,650 tonnes, down from 305,725 tonnes a week earlier.
Three month tin was trading at around $20,700 per tonne earlier this week, up from $19,699 a week earlier. LME stocks barely moved, standing at 11,665 tonnes earlier this week against 11,685 tonnes a week earlier.
Steel billet was trading with the three month position at around $360 per tonne earlier this week, down from $385 a week earlier. LME stocks remained unchanged on the week, at 50,115 tonnes.
Precious metals were again boosted by the hoped for liquidity injections. Spot gold bullion traded up to around $1,731.60 per ounce earlier this week, from $1,693.80 a week earlier; spot silver rose to $33.65 per ounce from $32.30, while spot platinum moved ahead to $1,606 per ounce from $1,550.
Chartists, who plot the prices of various commodities (and securities) on graphs, seek to observe patterns which will help them predict how the various markets are going to behave. One may have more or less faith in the value of this type of analysis, but it is undeniable that significant numbers of traders follow what the numerous chartists are saying, and frequently act on their opinions.
The following are more or less representative of what the charts are forecasting for the main metals:
Copper: support is likely around $7,880 per tonne and $7,450, while resistance is likely above $8,130.
Aluminium: support is likely around $2,000, while resistance was likely above 2,100.
Aluminium alloy: support is likely around $1,675, and resistance above $2,330.
Nickel: support is likely around $15,900, while resistance is likely above $17,400.
Zinc: support is likely around $1,920, while resistance is likely around $2,000.
Lead: support is likely around $2,100, while resistance is likely above $2,175.
Tin: support is likely around $20,000, while resistance is probable above $21,500.
Steel billet: support is likely around $350 per tonne, while resistance is likely above $400.
Gold: support is likely around $1,700, while resistance is likely around $1,750.
Silver: support is likely around $32.50, while resistance is likely above $34.30.
Platinum: support is likely around $1,570, while resistance is likely above $1,615.