Gold, Copper and Metals Wait on Central Banks

By FX Empire Analyst - Barry Norman
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Gold was steady on Thursday, holding minor gains from the previous two sessions as investors awaited cues from central banks on their plans to shore up the frail global economy, while a key U.S. employment report on Friday was also in focus. Later in the day, the European Central Bank will hold a policy meeting and announce its rate decision. For the first time in months, the ECB's main focus will be interest rates and whether they can be reduced to support a recession-bound euro zone economy. The Bank of England, also due to make its rate decision on Thursday, will shy away from increasing its economic stimulus program of government bond purchases, but another cash injection later in the year remains a safe bet in the eyes of many economists.

After eking out a new high for this year early in the week, Gold futures prices so far have adopted a consolidative mode as market would be eagerly waiting for the ECB meet later today and the first labor sector release since the Fed backed US economy through open-ended bond purchase. The metal is showing slight positivity at the early Globex drawing support from the Euro. Asian equities on the same anticipation are also trading higher at present. Going ahead, we expect gold to remain on an upside bias as ECB is waiting for Spain’s request of aid. However Spain is showing reluctance in asking bailout before it faces the litmus test of 4billion Euros bond auction. Expect the European stability Fund to start buying bonds in primary market followed from Draghi’s presentation. At the stage of a 100billion Euros bank bailout, ECB may remain under pressure as the government is operating under the fixed exchange rate system. Markets can expect the ECB to reduce the reference rate to a record low of 0.50% if not now but before the yearend to support the moribund economy. These all indicate a likely stronger Euro (except a Spanish down-gradation which is not likely) and gold.

From East, the Bank of Japan rate decision begins from today and markets may eye the developments from the BOJ after 10 trillion Yen easing last month. Further, the Bank of England rate decisions are also likely to grab investor attention and may continue to impact the metals pack.

Reports today may forecast the US factory orders to get weaken while the minutes of the September 13 FOMC meeting will be drafting the details of bond purchase plan.

Trading in base metals is mixed with Copper and Aluminum down while other is trading slightly up at LME electronic platform. Base metals have rather failed to follow the riskier assets rally as the Chinese bourses are off due to holiday limiting major spot activities.

Copper drifted lower as worries over a worsening outlook for Europe's economy and slowing growth in China weighed, although signals that a U.S. economic recovery was taking hold was expected to check losses. Further signs of slowing expansion in China, which accounted for 40 percent of refined copper demand last year, also came on Wednesday, with the country's official PMI for the services sector falling to 53.7 in September from 56.3 in August. Analysts with Goldman Sachs reiterated their bullish view on copper prices during the next six months, reflecting an expected pickup in Chinese demand, in part because of the Fed's new program, as well as low global stockpiles.

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