Copper & Silver Gain As The Peoples Bank Of China Cuts Rates

Precious metals rose 1 percent on Thursday, rebounding from near six year lows as indications from the U.S. Federal Reserve that it may move cautiously into the rate hiking cycle weighed on the dollar and prompted investors to cover short positions. Gold continued its gains on Friday morning adding $4.70 to trade at 1082.60. Fed officials on Wednesday continued to flag December as a likely time for U.S. interest rates to rise after seven years near zero, but the central bank signaled an intention to proceed slowly and steadily after that. Rising rates tend to weigh on gold, as they lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. Expectations that rates will rise have pushed gold prices down 9 percent this year. Silver diverged from precious metals this morning falling 17 cents to 14.205 while platinum gained $5.40 to 862.25.

New U.S. applications for unemployment benefits fell last week while a gauge of U.S. economic activity rebounded in October, signs of a healthy labor market and economy that could give the Federal Reserve confidence to raise interest rates next month. Other data on Thursday showed factory activity in the mid-Atlantic region picked up slightly in November after two straight months of declines, another indication that the worst of the manufacturing rout was probably over.

There hasn’t been much data or news to affect the price of gold while markets remain glued to the Federal Reserve and the ECB meetings coming next month.

 

Base metal prices fell to multi-year lows on Thursday amid persistent worries that supply cuts are not enough to balance a global market battling weak demand in top user China. The worries overshadowed the impact of a weaker dollar, which fell after the Federal Reserve flagged an interest rate increase next month, but also hinted at a cautious approach after that. A weak dollar makes dollar-priced metals cheaper for non-U.S. investors.

In China, data on Tuesday showed October home prices edged up 0.1 percent from a year earlier, the first rise in 14 months, but most investors remain worried over the economy’s overall health following several weak readings.

U.S. bank Goldman Sachs said commodity prices could drop sharply again as an adjustment in supplies from energy, metals and agricultural producers remains insufficient in the face of weaker demand from key consumers such as China. Chinese steel demand shrank around 6 percent in January-October, according to the China Iron and Steel Association, reflecting slower industrial activity as the world’s No. 2 economy heads for its weakest growth in 25 years. Copper gained 5 points climbing off its recent lows to trade at 2.078 supported by unexpected actions by the Peoples Bank of China. China’s central bank provided yet more stimulus to the country’s economy on Thursday by lowering the interest rates on the loans it gives to banks.

The move, which will come into effect on Friday, will cut the overnight and seven-day rates it gives to Chinese lenders by 2.75 percent and 3.25 percent respectively. The People’s Bank of China (PBOC) announced the news measures in its official blog, according to Reuters, and came after markets in China had closed for the trading day. By cutting the rates to banks, the PBOC hopes that more money will flow into the economy.