The damage done to metal prices by poor US retail sales, declining US consumer sentiment and reduced Chinese growth was amplified this week by sell stops - an instruction to sell at the best available price after the market goes below a specified price. There were also fears that the US Federal Reserve may cut back its quantitative easing programme, which would reduce the amount of spare money available for investment.Copper prices were down by nearly $350 (£228) per tonne on the week, while gold was down $200 per ounce.
7.7% - Chinese growth in Q1, below expectations of 8%
The rot started to set in when the US Census Bureau announced that advance figures for retail trade sales in March were down by 0.6% from February levels and the consumer sentiment index, compiled by the University of Michigan, fell to 72.3 in April, according to preliminary figures, from the final figure of 78.6 for March.
Matters did not improve when official figures showed that China’s annual growth during the first quarter of this year was 7.7%. Not only was this below the 7.9% seen in the preceding three months, but the figure was also well below the markets’ expectations of 8%.
Meanwhile, the country’s industrial output increased by 8.9% between March 2012 and March 2013, but the market had been hoping for 10%.
News from the eurozone was not much better. According to the ZEW Centre for European Economic Research, economic expectations for the zone have dipped between March and April by 8.5 points to 24.9, while the centre’s indicator of the current economic situation remained more or less unchanged at a lowly -76.0. For Germany, the centre’s indicator of economic sentiment was down by 12.2 points at 36.3 in April, while the assessment of the current economic situation in the country dipped by 4.4 points to 9.2 points.
There were also reports that Cyprus was selling its gold reserves to help fund its bank bailout, the price of which has risen to $23bn. This helped both to undermine the price of gold and renew fears that other eurozone countries, such as Slovenia and Portugal, may need fresh or renewed help. Such fears also weakened the euro, which left the dollar looking stronger and weighing on metal prices.
In such an uncertain climate, the news that China’s money supply had increased by more than expected was interpreted as increasing the risk of inflation rather than providing more cash to invest in (and push up prices of) gold and industrial metals.