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Copper Follows the Dollar – For Now

By Jim Williams

As the US dollar goes, so goes copper. The red metal continues to follow the trend – if the dollar drops, copper rises. The latest decline in the dollar set off a string of buying on Tuesday. Copper opened for trading this morning at $2.195. London Metal Exchange benchmark copper bumped up slightly to $4,890 a ton Tuesday after earlier hitting $4,959, near the one-week high of $4,965 seen on Monday.

Traders said copper’s gains on Tuesday accelerated in afternoon trade after the US dollar dropped to a six-week low, pressured by expectations the Federal Reserve will delay raising interest rates after recent soft US economic data. Some experts think the Fed may remain status quo for the rest of the year since they don’t meet this month and most likely won’t make any changes until after the November election.

“The US central bank seems to be continuously pushing back the decision to raise interest rates,” said Canto Fitzgerald analyst Asa Bridle. “We’re in a low interest rate environment and that is normally positive for metals and other commodities.”

Does the dollar matter?
“The divergence between the dollar and precious metal prices tells me that the dollar does not matter as much as it used to these days, and that the historical relationship between the greenback and commodities may be in the process of breaking down,” says frequent tED contributor, Andrew Hecht, of Seeking Alpha.

That being said, “The strength in the dollar contributed, at least in part, to corrections in energy, agricultural, metals and mineral prices,” adds Hecht. “When the dollar index rallied from 95.375 on July 5 to 97.62 on July 25, the price of copper dropped from almost $2.25 to $2.1165 on July 8 before recovering back to the $2.20 level. The fact is that old habits die hard, and many speculators and traders tend to follow the dollar by going long commodities when the dollar is falling and short when the dollar rallies.”

You can read Andrew’s article, “A Strong Dollar Takes A Toll On Commodities, Or Does It?” here.

Copper Producers Continue to Cut Costs
Reports released Tuesday indicate costs in Chile’s mining industry continue to fall as producers continue to adapt to sharply lower prices for the red metal.

Chile supplies almost a third of the world’s copper.

According to the study by the Chilean Copper Commission, cash costs at Chile’s 19 largest mines fell to an average of $1.285/lb during the first three months of the year. That is down 13% from the same timeframe last year.

Some say the fall in production costs reflect improved mine management and lower costs for energy and services. Others say the lower prices and the closing of a number of smaller mines is a reaction to the price of copper hovering around the $2 mark.

We will keep tabs on the Fed, on the mining industry and an eye on the November election as it portrays to the cost of copper.

 

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