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Copper Rises – Thank You, Brexit?

By Jim Williams

Investors in the US woke up this morning to some good news out of London. The price of copper in London rose to its highest in almost eight weeks as investors bet on more global stimulus measures after voters in the UK said cheers to the European Union last week.

“Major central banks are ready for more easing measures to stabilize markets,” Argonaut Securities said in a note. “Against this backdrop, declining inventories in steel, coal and copper in the Chinese domestic market and ongoing capacity reduction campaigns … may support further increase in most commodity prices despite weak seasonal demand.”

“Beyond the short-term gyrations, the bias for copper is for it to still ease from here through the rest of the year,” said analyst Daniel Morgan at UBS in Sydney. “Demand is positive but it’s not spectacular and many signals point to a copper market that is well supplied,” he said.

At the time of this report, three-month copper on the London Metal Exchange had slipped by 0.3 percent to $4,805 a ton, having earlier risen to the highest since May 5 at $4,831.50, following a 2.3 percent gain the day before.

Tuesday’s boost in copper was a direct result of a weaker dollar. The latest Wall Street Journal Dollar Index (WSJD) was down 0.3% at 87.20, as investors took profits on the dollar after several days of sharp gains. The WSJD measures the dollar against 16 currencies. Rumors of the US Federal Reserve delaying interest hikes until December are also weighing on the dollar.

Whether the impact of the dollar will last “will play a big role in how copper performs in coming days,” George Gero, a managing director at RBC Capital Markets, told the Wall Street Journal.

Analyst at the Economic Calendar say the result on the Brexit referendum won’t have major long-term implications on the copper market, unless it triggers a complete dismantling of the EU.

If that happens, they write, economic turmoil will likely impact the red metal, but — in the near-term — they believe demand from China is a far bigger concern.

Another factor in copper’s favor this week is the fact that oil is up a few percentage points. The price of oil plays an important role in the price of copper since many funds trade the two commodities at the same time.

 

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