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Commodities rally Worldwide as US Dollar FALLS again

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March 20, 2009 – Comments (0)

The USA just made a game changing move and the commodities have changed course and are now rallying as the USA dollar falls. Reason? Majority commodities trade based on the USA Dollar.

Copper, Zinc, Coal, Aluminum, Oil, Gold, Silver etc. etc.

Copper Heads for Biggest Weekly Gain in Three Weeks in London

By Anna Stablum

March 20 (Bloomberg) -- Copper headed for its biggest weekly climb in three weeks in London as the dollar continued to retreat after the Federal Reserve pledged to buy as much as $1.15 trillion of assets.

The U.S. Dollar Index, which measures the currency against six other monies, fell as much as 0.4 percent and has dropped every day since March 9, sliding 6.4 percent. That has sparked concern about inflation among some investors, said John Meyer, head of research at Fairfax IS in London. Aluminum and zinc climbed to the highest in two months.

“It is not because investors think the U.S. economy is suddenly about to recover, it is because the Fed is just going to throw money at the problem until it goes away,” Meyer said by telephone of metals’ climb since the Fed decision.

Copper for three-month delivery dropped $34, or 0.9 percent, to $3,965 a metric ton at 10:19 a.m. on the London Metal Exchange. The contract earlier climbed as high as $4,075 a ton, the highest intraday price since Nov. 10, and has advanced 8 percent this week. The metal has added 29 percent in 2009, rebounding from last year’s 54 percent plunge.

Declines by the greenback reduce the cost of dollar- denominated commodities for holders of other currencies. The dollar index was on track for its worst week since September 1985.

Fed officials voted March 18 to buy Treasury and mortgage bonds in an effort to revive the world’s biggest economy, lifting stocks as well as commodities. Copper, zinc and aluminum all rose more than 6 percent yesterday in London.

Inflationary Effect

“The Fed’s surprise decision to announce quantitative easing, the subsequent dramatic weakening of the dollar and the move up in equity markets all point to a recovery in risk appetite,” Barclays Capital said yesterday in a report. The inflationary effect of the Fed’s decision will support commodities, the bank said.

Copper, used in plumbing and electrical wiring, has rallied this year on speculation about buying by China’s government for national stockpiles. The Asian country is the world’s biggest user of copper and aluminum, while the U.S. ranks second.

Metals are unlikely to sustain their gains, according to Barclays, because “an awful lot of this rally has been driven by factors including consumer restocking, Chinese buying and hedge fund short-covering.”

Copper inventories in LME-monitored warehouses rose 2.1 percent to 503,950 tons. Canceled warrants, or metal earmarked for delivery, increased 1,875 tons to 24,525 tons and now account for 4.9 percent of total inventories, down from 12 percent on March 4.

Aluminum, Zinc

Aluminum for three-month delivery gained $13, or 0.9 percent, to $1,476 a ton. The contract climbed as far as $1,492 a ton, the highest intraday price since Jan. 16. LME-monitored stockpiles of the lightweight metal climbed to a record 3.45 million tons and have more than tripled in the past year.

“Most at risk of a downward slide is aluminum, where the pace of output cuts has slowed and incoming data suggest that already-announced capacity cuts are not being fully adhered to,” Barclays Capital said.

Zinc added 0.9 percent to $1,275 a ton, paring a gain as far as $1,308, the highest intraday price since Jan 14. Lead fell 0.5 percent to $1,318 a ton, nickel was unchanged at $10,005 a ton, and tin also was unchanged at $10,200 a ton.

To contact the reporter on this story: Anna Stablum in London at astablum@bloomberg.net.

Last Updated: March 20, 2009 06:24 EDT

 

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