Base Metals Hit Highs On Loose Monetary Measures

SHANGHAI, Sept. 17 (SMM) – Despite fewer pieces of news last week, the upside trend for base metals is definite following the Federal Reserve's (Fed) third round of stimulus measures September 14.

Base metals have recently posted prominent performance, with three-month copper and zinc hitting the highest since May and March, respectively. The US dollar index, though, experienced a 3% drop since early September. The announcement of QE3 has greatly boosted copper markets, and as a matter of fact, market expectations had grown that the Fed Chairman Bernanke would introduce QE3 at the global central bank's meeting following the release of the Fed's meeting minutes for August.  This new round of quantitative easing is different on its open-ended version from the previous two, since it will conduct mortgage-backed securities (MBS) purchases until labor market improves substantially, providing flexibility for the Fed to make policies. In view of global trend of a new round of looser monetary measures, global inflationary pressures will increase. 

The international credit rating agency Egan-Jones unexpectedly slashed the US credit rating to AA- from AA last Friday, sending the US dollar index down. The international financial market, however, continued to move higher last Friday, and US equity markets reported a fresh top in nearly five years. The Dow Jones Industrial Average rose 53.51 points or 0.40% to 13593.37, the Nasdaq Composite Index surged 28.12 points or 0.89% to 3183.95, and the Standard & Poor's 500 Index gained 5.78 points or 0.40% to 1465.77. The international gold price increased wildly by 2% last week to levels above USD 1,770/oz, hitting the highest settlement price in nearly six months, and up for four straight weeks. The international silver price climbed by nearly 3% the whole week with the settlement price moving towards USD 35/oz, the highest since late February this year.  

As market anticipations over the Fed's looser monetary measures are increasing gradually, commodity markets have been boosted and moved out of several months' sluggishness. As such, gold, silver, as well as base metals, which are greatly driven by financing demand, are likely to extend the gains over the near term.