Fed Easing Power: Dollar Down, Metals Rise

Monday, 11 October 2010 08:43 AM

Copper may rise in New York and London as speculation that Federal Reserve officials will this week signal their readiness to buy more government debt to support economic growth weighs on the dollar.

The U.S. currency traded near an eight-month low against the euro and touched a 15-year low versus the yen before tomorrow’s release of minutes from the Fed’s Sept. 21 policy meeting. A weaker dollar makes metals priced in the currency cheaper in terms of other monies and fuels demand for raw materials as an alternative investment.

“The rising supply of dollars in the system will increase demand for hard assets like commodities and precious metals as a store of value,” said Prasad Patkar, who helps manage about $1.8 billion at Platypus Asset Management in Sydney.

Copper for delivery in December rose 1.25 cents, or 0.3 percent, to $3.787 a pound at 8:10 a.m. on the Comex in New York. Prices touched $3.82, the highest level since July 8, 2008. Copper for delivery in three months added 0.1 percent to $8,317 a metric ton on the London Metal Exchange.

Fed speculation intensified on Oct. 8 as government figures showed that U.S. payrolls fell by 95,000 workers in September, more than the drop of 5,000 estimated by analysts surveyed by Bloomberg. The Dow Jones Industrial Average of U.S. equities closed above 11,000 points.

IMF Meeting

Exchange rates dominated the International Monetary Fund’s annual meeting in Washington amid concern that nations are relying on cheaper currencies to aid growth, risking trade wars. China was accused of undervaluing the yuan, while low interest rates in the U.S. and other rich nations were blamed for flooding emerging markets with capital.

“We expect further gains in base-metal prices, especially copper and tin, as the outcome from the recent IMF meeting and last week’s U.S. jobless-claims number confirm the market’s expectations of renewed quantitative easing in the U.S. and Japan,” Hussein Allidina, head of commodities research at Morgan Stanley in New York, said in a report today.

Hedge funds raised bullish bets on copper futures to the highest level since Feb. 1, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 24,399 contracts on the Comex in the week ended Oct. 5, the commission said in its Commitments of Traders report on Oct. 8. Net-long positions rose by 2,237 contracts, or 10 percent from a week earlier.

Exchange-Traded Funds

ETF Securities Ltd., manager of $22 billion in assets, said it’s preparing to introduce exchange-traded commodities funds backed by copper, aluminum, nickel, lead, zinc and tin. No date has been set for trading to start, spokeswoman Noreen Shah said.

“The big question on everyone’s lips is whether there will be an official exchange-traded fund launch announcement this week in one of the metals,” RBC Capital Markets said in a report today.

Aluminum is most likely to be the first industrial metal to trade via an ETF, while tin is least likely to back a product because it has the smallest inventories, according to a Bloomberg survey of analysts.

LME copper stockpiles rose 0.1 percent today to 372,475 tons, daily exchange figures showed. They fell last week for a 33rd week in a row. Copper stockpiles in Shanghai rose by the most in almost six months, the Shanghai Futures Exchange said Oct. 8.

Orders to draw copper from LME stocks, or canceled warrants, rose 11 percent to 25,300 tons. They have surged 55 percent in three sessions.

Tin for three-month delivery on the LME fell 0.4 percent to $26,250 a ton. Prices touched a record $26,790 on Oct. 6. The metal has jumped 55 percent this year, leading advances on the LME, after production was disrupted in Indonesia and the Democratic Republic of the Congo.

Nickel climbed 0.3 percent to $24,475 a ton, while aluminum gained 0.1 percent to $2,423 a ton. Lead added 1.2 percent to $2,300 a ton and zinc rose 1.8 percent to $2,331 a ton.

--Editors: Dan Weeks, John Deane.

To contact the reporter on this story: Maria Kolesnikova in Moscow at mkolesnikova@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter@bloomberg.net.

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Copper may rise in New York and London as speculation that Federal Reserve officials will this week signal their readiness to buy more government debt to support economic growth weighs on the dollar.The U.S. currency traded near an eight-month low against the euro and...
Monday, 11 October 2010 08:43 AM
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