Chinese Move Knocks Copper; Gold, Silver Glitter

Source:

"Fresh move by China to curb inflation undermines copper prices."

A fresh move by China to curb inflation undermined copper prices on Friday while a battle over Mideast unrest boosted gold and silver. The news that China's central bank raised lenders' required reserves by 50 basis points sent a chill through some markets as investors worried that more monetary tightening would cut demand in the world's biggest consumer of commodities.

Markets sought to balance Chinese moves to cool the economy—including a rate hike earlier this month—with strong underlying fundamentals in copper, including an expected shortage of metal to meet global demand this year. "The Chinese move this morning to raise the reserve ratio is a continuation of policy tightening that we expect will persist for some time yet," said Nic Brown, analyst at Natixis in London.

"There is potential for base metal prices to correct lower soon. . .We don't see a collapse but a correction. . .fundamentals are still positive."

In the wake of the news from China, benchmark copper on the London Metal Exchange dipped 0.5% to $9,763 a ton by 1130 GMT. The metal used in power and construction hit a record peak of $10,190 earlier this week.

The persistent unrest in the Middle East boosted safe-haven gold to a five-week peak and sister metal silver skipped to the highest levels in 31 years.

"(There has been) a remarkable move in silver, which has helped gold back towards $1,400," said Saxo Bank senior manager Ole Hansen.

"Middle East and North African unrest was undoubtedly the trigger, but it looks like investors have been waiting for the opportunity to buy at lower levels, and once that opportunity disappeared they returned for fear of missing the move."

Gold fell more than 6% in January, but many investors had been waiting for further losses to re-enter the market.

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