Isra-Mart srl: BASE AND PRECIOUS METALS - European Opening View - Metals recover, precious metals break higher

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The strong rebound in the base metals that started on Friday and accelerated on Monday, peaked in Asian trading yesterday. At the day’s high yesterday prices were up an average of 1.7 percent, they ended the day down an average of 1.5 percent. The market became increasingly nervous ahead of the EU summit and especially when it learnt that the EU finance ministers’ summit was cancelled leaving just the EU leaders’ Summit. Quite how to interpret this remains to be seen, but generally base metals and equities did not like the development, while Gold climbed from lows at around $1,643 to over $1,700, with silver moving above $33.

Despite a lot of uncertainty going into today’s EU summit, the base and precious metals are upbeat – the latter is not surprising, but we are somewhat surprised by the 1.7 percent average gain in the base metals this morning.

Copper leads the advance with a 2.8 percent gain to $7,750, while aluminium is up 1.5 percent at $2,245 and zinc is up 1.9 percent at $1,888. Volumes are strong at 10,111 lots, of which 6,079 lots are copper.

Gold and silver are strong they are up 1.1 percent and 1.4 percent to $1,715.90 and $33.44, respectively, while platinum is at $1,567 and palladium is at $651.

In Shanghai the January contracts are mixed – copper is up 2 percent at Rmb 57,500, lead is down 0.6 percent at Rmb 15,180, aluminium is down 0.4 percent at Rmb 16,410 and zinc is down 0.1 percent at Rmb 15,130. Gold is up 3.7 percent at Rmb 354.93.

Spot copper in Changjiang has bucked the trend – it is down 0.9 percent at Rmb 57,000-57,600 which puts prices either side of the futures and suggests the higher prices of late have attracted destocking. The LME/Shanghai arb has reopened with imported copper at a small discount of $20/tonne to Shanghai futures price.

Equities – the Dow closed down 1.75 percent yesterday and this morning Asia is more upbeat, with the Nikkei up 0.3 percent, the Hang Seng is up 0.4 percent, China’s CSI 300 is up 1.4 percent, although the MSCI Asia Apex is down 0.4 percent. More dovish comments from China’s Premier Wen Jiabao gave the market some hope that some parts of its monetary policy may be eased. This seems to have off set some of the concerns over the EU – at least in the short term.

The dollar is in limbo with the dollar index at 76.17, while the euro remains remarkably strong at 1.3915, cable is at 1.6015, the aussie is at 1.0370, the yen is extremely strong at 75.95 and the yuan is firmer too at 6.3570.

Although the EU summit will no doubt be the dominating factor today, there is also some important data out including US durable goods orders, new home sales and crude oil inventories, see table on right for more details.

Today was set to be an all important decision day on EU debt, but we are now less sure that EU policy markers are ready to lay out a comprehensive plan, so the market may have to wait a while longer. Overall, we remain medium term bearish as the size of the debt issues are unlikely to go away regardless of what policy makers decide. If they manage to contain the situation that will be a result, but if they are to come up with a plan to get to the root of the problem then that is likely to mean further economic hardship.

Overall we would be braced for both a relief rally and disappointment and have contingency plans for each outcome. Given this uncertainty we are not at all surprised gold is attracting fresh safe-haven buying.