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EU uncertainties weigh on commodities

By Michael Bellart (Global Times)

08:18, May 21, 2012

Copper, gold and crude prices steadied after the markets closed on the Chinese mainland Friday, though problems in the eurozone continue to hang over the global commodities markets, leaving the prospects for prices to either stabilize or recover this week highly uncertain.

The benchmark three-month copper contract on the London Metal Exchange (LME) fell a fraction of a percent in post-Asian trading to close at $7,657.50 per ton, finishing down 0.15 percent for the day and 4.28 percent for the week.

Nymex West Texas Intermediate (WTI) crude oil for June delivery lost 0.69 percent after the domestic markets closed to end at $91.48 per barrel, down 1.17 percent for the day, capping off a weekly loss of 4.84 percent.

Meanwhile, the June gold future on Comex bounced back from early losses to close 1.08 percent higher for the day at $1,591.90 per ounce - eking out a 0.50 gain percent for the week. The rally in gold futures Friday could be seen as the commodities market's first tentative step into riskier assets in the wake of this month's downturn. So far, gold has tumbled along with other commodities as traders and investors abandoned all but the safest assets, such as US Treasury and German government bonds.

One could see the flight to safety in the drop in yields last week. The yield on the 10-year German bond plunged nearly 6 percent last week as investors outbid each other to hold on to one of the few financial assets considered safe these days.

This bodes poorly for Chinese commodity prices, which track international exchanges, especially those for precious metals.

Commodities prices aren't usually so correlated between sectors. Copper prices don't typically have much of a relationship with wheat prices, or even gold prices. That has changed during this latest period of turmoil as commodity prices have fallen in unison.

Elsewhere, there are signs of events that could trigger a short-term or medium-term rebound.

The US Federal Reserve, for example, could move ahead with another round of monetary stimulus if the US economic recovery continues to falter.


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