Metal market: volatility growth in the gold and copper markets

29.07.2011 13:35
Metal market: volatility growth in the gold and copper markets

YEREVAN, July 29. /ARKA/. New rally for gold price started at the beginning of July 2011, the first time was delayed last week.

It took place despite the achievement of new historical maximum o gold – 1609.55 US dollars for troy ounce on the basis of uncertainty regarding the debt crisis of eurozone and continuous debates related to the increase of marginal level of US borrowings.

However, the latest gold was under pressure, thus stepping back from the maximum. Progress in solving debt problems of eurozone gained in the extraordinary summit of EC on June 21, Thursday weakened the demand for gold. Leaders of eurozone agreed on the provision of new support package to Greece in the amount of 109 billion euro and reformation of the support fund to Greece, Portugal and Ireland.

During reformation the dates of lending redemption were prolonged and the percent rates of credits for the countries having debts were reduced. Contribution of private sector in helping Greece will be 37 billion euro.
Reduction of gold prices was accompanied by the improvement of moods in European bond markets where profitability of state bonds of Greece, Spain and Italy stepped back from the reached maximum.

On July 22, Friday the gold could manage to rehabilitate its position after the fact that international rating agency Standard & Poor’s approved the possibility of decreasing the rating of USA and the representative of White House informed that agreements on the increase of the size of American state debt in the Congress is not obtained yet. In its result, the gold price for the previous five trade sessions increased by 0.48% to 1600.97 US dollars per troy ounce.

Next week the gold price will be defined by economic news from the USA and eurozone. The news from the USA will be in the center of attention of market participants – consumer confidence for July, forecast data on the changes of GDP volumes for the second quarter, figures from the market for June, as well as data on the index of business activeness in Chicago for July. From the news of eurozone preliminary data on consumer prices for July can be earmarked.

Despite the delay of incoming trend of yellow metal, it still remains in the center of attention of market participants as an asset-shelter for hedging the risks of inflation and economic cataclysms. According to our assessments, on the background of stable industrial and investment demand, tenseness related to debt problems of USA, mid-term prospects of gold still remain moderately positive.

Due to the occurred optimism related to debt problems of eurozone and continuous discussions regarding the upper level of state debt of the USA, increase of volatility level of gold in the next week. Reduction of US dollar cost to its main competitors will support gold quotation in the next five trade days. The gold price in the next week will probably be in the range of 1590.0 – 1630.0 US dollars per troy ounce. It is recommended to open short-term long positions in achieving the lower margin of the range.

Copper price in future market reduced by 0.23% to 4.4045 US dollars per one pound last week. Constraints for the increase of the red metal became negative statistics from China and growing stock exchange asset supplies in London Stock Exchange.

Unfavorable macroeconomic statistics from China became the main factor of price reduction of the red metal. The data for import of copper published on July 21, Thursday demonstrated reduction. Thus, import of purified copper in China in June reduced by 16% to 178.64 thousand drams.
Next week copper price will be defined by economic news from the USA and eurozone. If the data from the USA on housing market for June and GDP for the second quarter will be better than expected, copper price could renew its growth. This week, positive background for copper remain high for oil.

However, in case of renewal of the increase of American currency on the background of delays in the American economy or negative macroeconomic data from the USA, quotation of copper could show reduction. The assumed range of copper cost in the future market next week will be 4.30–4.50 US dollars per pound of copper.

Mikayel Verdyan, analyst of FOREX CLUB

The opinion of the author may not agree with the position of the editorial board.


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