Trade war hampers copper resurgence

Timmins Daily Press

Longer-term outlook for gold, however, remains strong

Copper failed to respond positively on Friday to China boosting bank lending because the trade dispute between the biggest metals consumer and the U.S. still weighed on the market.

China’s central bank said it was cutting the amount of cash that banks must hold as reserves for the third time this year, releasing 900 billion yuan ($126 billion) in liquidity to shore up the slowing economy.

The central bank, however, said there would be “no flood-like stimulus.”

“It comes on top of the last couple of days, where we saw the market recover quite strongly. It raises the question of how much further the market can rally at this stage while the trade war is still on,” said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

“Some additional stimulus measures had been expected, so I think that’s probably adding to the lack of reaction.”

Copper rebounded from a two-year low hit on Tuesday after the United States and China agreed to hold further trade talks to resolve a dispute that has weakened global growth and metals consumption.

On Friday, a White House adviser said talks between U.S. and Chinese trade negotiators could “heat up” during meetings in October.

Benchmark copper on the London Metal Exchange slipped 0.2 per cent to $5,834 a tonne in final open outcry trading.

COPPER TECHNICALS: Copper failed to break through its 50-day moving average at $5,841 this week, prompting speculators to hold back.

“The downside pressure is not over, the downside risks are still concrete,” said Gianclaudio Torlizzi, partner at consultancy T-Commodity in Milan. “Some shorts have covered, but not any big positions yet.”

A break above the 50-day moving average would signal that the market was stabilizing.

Copper is one of the key metals mined in the Timmins area. The other is gold, which fell 1 per cent on Friday as upbeat remarks from Federal Reserve Chair Jerome Powell in the U.S. and improved risk appetite offset a weaker-than-expected U.S. nonfarm payrolls report, putting bullion on track for a second straight weekly loss.

The U.S. Labor Department’s monthly employment report showed job growth slowed more than expected in August, with retail hiring declining for a seventh month.

Powell called the jobs report consistent with a quite strong labor market, in remarks made at a panel discussion in Zurich, adding that despite trade uncertainties he did not foresee or expect a U.S. recession.

“The sell-off in gold was mainly due to the slightly optimistic tone Powell delivered throughout the session. He was pointing out that the U.S. economy was still performing well. Markets were expecting it (speech) to be slightly dovish,” said Edward Moya, senior market analyst with OANDA.

Spot gold was down 0.7 per cent to $1,508 per ounce at 02:38 p.m. EDT (1838 GMT), after falling more than 1 per cent earlier in the session. U.S. gold futures settled down $10 at $1,515.50.

“The overall longer-term outlook for gold, however, remains strong and it’s going to be slightly choppy going into the rate decision in mid-September,” Moya said.

“The main reason we are going to see gold remaining supportive is the stimulus from the Fed and China’s central bank is going to keep coming. Investors are not expecting a 50 basis point cut in the September Fed meeting, but they are expecting the talks to be there.”

tdp.news@sunmedia.ca

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