Labor Day, Merkel and Metals

By FX Empire Analyst - Barry Norman
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On the first day of a new week and month, base metals are trading up by 0.2 to 0.72 percent at LME electronic platform supported by hopes of easing. US markets are closed today for the long Labor Day holiday weekend, so volume and prices are expected to be light.

The Asian equities are also mostly positive on similar anticipation coupled with optimism regarding the eurozone as traders now anticipate Mr. Draghi's actions for the ECB coming on September 6th. Early today the Chinese HSBC manufacturing PMI dropped to near nine months low on fall in industrial new orders.

Lackluster eurozone and slowing global growth numbers are likely to weaken the export demand for Chinese goods and may heighten hopes of easing from the second-largest economy. China is about to witness a change in leadership this year and the Premier might continue to fine tune monetary policy to boost economic activity to fetch growth targets. Markets are expecting the PBoC to offer up some form of stimulus shortly, but without demand in the eurozone and the US improving, stimulus will meet deaf ears.

Equities including metals pack at London Metal Exchange are trading slightly positive on similar anticipation of easing from US and China.

In the Zone, the leaders have increased efforts to control the three-year long crisis and the ECB has also provided its support and may continue to instill optimism among investors. The ECB’s rate decision will be highly anticipated this week and markets are likely to brace the European developments and remain in the positive territory in today’s session.  Rumors are that Angela Merkel is traveling between Spain and Italy asking leaders to hold off on their requests for aid until new programs and court challenges are completed. Spain is against the wall with its regions requesting bailouts and Bankia needing additional funds. Greece is just about out of money and Italy, is about to hit the wall running as Monti continues to deny the need funding although economists that a bailout is inevitable.

The PMI numbers are due from Germany and UK, which may improve slightly after bottoming in the summer months and may support gains in metals. Japanese vehicle sales may also improve slightly and may continue to restrict downside. Today, the US markets are closed due to Labor Day and hence the session is likely to remain subdued due to lack of cues from the World’s largest economy.

After surging to the 22-weeks high, stirred by the Fed Chairman, gold future for December delivery are expect to maintain the momentum rally by gaining over $4 already this morning.

Australian retail sales declined unexpectedly by the most in almost two years. The AUD weakened to a five week low which would have created some pressure on the metal (weak iron ore prices due to lower demand in China) as we have seen gold has gains relatively less than silver. Expect gold to maintain the rally as traders are betting a price rise. From the Speculative traders, long positions have increased by 158491 contracts which took the net long position increased by 7%. For long term fundamentals, gold grades are declining at 8% CAGR, while cash cost are rising at 14%CAGR.

Silver as well is seen continuing Friday’s rally at the early Globex by over a percent despite contraction in

Chinese manufacturing and a deteriorated Australian retail sales. Market would have been eyeing the ECB meet on September 6 at which anticipation on Draghi is quite high after he boldly pledged to save Euro.  Silver traders have also betting on a price rise as CFTC data released on Friday showed speculative long positions have outnumbered the shorts by 28,638 contracts, the highest since March 6. Net-long position improved by 0.35% from a week earlier. Stimulus from any of the major economies, the US, the EU or China, would be a positive for silver as metal demand will increase. With the odds in favor of stimulus in the US, silver prices are likely to remain strong.

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