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Fluctuating currencies keep gold flat, copper eases off highs from Chile quake

GOLD futures finished little changed today, with the currency market providing offsetting forces, and copper eased off its highs as investors realised they had over-reacted in anticipating major supply disruptions as a result of the quake in Chile.

The muscular US dollar hurt gold, but investors were buying gold in other countries due to weakness in those currencies.

Lightly traded but nearby March gold fell US50 cents, or 0.04 per cent, to settle at $US1117.80 an ounce on the Comex division of the New York Mercantile Exchange. Most-active April slipped US60c (0.05 per cent) to $1118.30.

Most-active May silver fell US5.2c (0.31 per cent) to $US16.469.

Copper futures settled higher on support from an earthquake that hit Chile, the world’s biggest copper-producing nation, but the metal eased back from a seven-week high as the country’s mines restarted and concerns about European sovereign finances boosted the US dollar.

May copper gained US6.6c (2 per cent) to settle at $US3.35 a pound on the Comex division of the New York Mercantile Exchange.

The contract reached as high as $US3.4870 – its strongest point since January 11 – in electronic trading over the weekend after an 8.8-magnitude earthquake struck Chile on Saturday, killing at least 700 people. Five major mining companies were affected by the quake.

Copper initially rallied more than 6 per cent in thin electronic conditions in “one of those OMG moments”, said Frank Lesh, a broker and futures analyst at FuturePath Trading.

With much of the disruption coming from power outages, market concerns about the extent of the impact on production eased as mines began coming back on line.

Electricity cuts disrupted about 17 per cent of Chile’s copper production – or almost 5 per cent of world production, noted Standard Bank analyst Walter de Wet.

In the gold market, while the moves were not large, the metals nevertheless held up even though the March US dollar index was up by around 0.435 points just before the Comex gold pit was closing. Often, investors buy gold when the dollar is weak and sell when the greenback firms.

“It (gold’s support) is because of the way gold moved on the cross-currencies, such as the sterling,” said the head of one precious-metals trading desk.

Investors in other countries such as the UK, looking at the weakness in their own currencies, basically said, “So what if the US dollar gets really strong, if my currency gets extremely weak?” the trader said. Thus, they bought gold despite US dollar gains.

Sterling Smith, commodity trading adviser and market analyst with Country Hedging, also said gold held up because of gains for the metal in terms of the euro and British pound.

“Anyone wanting out of pounds is not jumping into euros,” he said. “Some of that money is finding its way into the dollar, and some is finding its way into gold.”

Shortly after the gold pit closed, the euro was at $US1.3545, down from $US1.3616 late Friday. The British pound was down to $US1.4989 from $US1.5251.

The euro tumbled on worries about Greece’s swollen debt and doubts about whether reports of a possible aid plan would rescue the country. Meanwhile, with the UK economy struggling, there are worries about whether the country will become the market’s next flashpoint, currency analysts said. There are also concerns about whether any party will have a majority after looming elections, along with UK insurer Prudential’s announcement that it would buy a unit of American International Group for $US35.5 billion.

Meanwhile, April platinum settled up $US4.10 (0.27 per cent) to $US1544 an ounce. June palladium rose $US4.25 (0.98 per cent) to $US438.

The base metals market “over-reacted” to the price-upside on news of the Chile quake, said Bob Haberkorn, a senior market strategist at Lind-Waldock. “It’s an opportunity to sell. Those mines will be up quicker than anything they do down there.”

Chile’s copper production accounts for some 34 per cent of the world supply, with six of the world’s 28 main copper mines located in the nation.

“While the supply disruptions will support the price, we believe that supply disruptions will be minimal,” Mr de Wet said. “Indications are most mine operations disrupted by the earthquake are returning to normal.”

Copper also came under pressure from gains in the US dollar.

Shortly after copper closed, the ICE Futures US Dollar Index was up 0.448 points (0.6 per cent) at 80.872.

A stronger greenback often pressures dollar-denominated metals like copper by making them more expensive for purchasers using other currencies, which can damp demand…read more at The Australian