Copper extends gains on QE outlook

Copper extended Wednesdays gains and surged more than 3% on Thursday, following Feds comments which dampened speculation over an earlier than expected deceleration of the central banks monetary easing program.

On the Comex division of the New York Mercantile Exchange, copper futures for September delivery traded at $3.183 a pound at 9:54 GMT, up 2.99% on the day. The industrial metal rose by as much as 3.4% earlier in the European session to hit a three-week high of $3.201 a pound. Days low stood at $3.086. Copper settled higher yesterday, extending this weeks gain to 3.6% after closing 0.38% higher the previous one.

The red metal gained, like most of the other dollar-priced commodities, as the U.S. currency was hammered down yesterday following the released minutes of FOMCs June meeting and Ben Bernankes later appearance in Boston. Protocols from the FOMC’s meeting showed that policymakers were divided in their opinion about the future of Quantitative Easing. Around half of them believe the central bank should start winding down bond purchasing by the end of the year, while the rest think the labor market remains weak, citing the latest Unemployment Rate reading.

Three hours later, Ben Bernanke further dampened expectations of an imminent Quantitative Easing downscale by saying: “Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy.” He said the U.S. economy needs Fed’s bond purchasing program over the near-term as while the manufacturing sector, housing industry and other sectors from the industry have improved, the latest 7.6% unchanged reading of the Unemployment Rate pointed at a fragile labor market. Meanwhile, inflation remained stable and low, giving the central bank enough room to ease money supply. This comes after in June Bernanke pointed at an imminent scaling back of the monetary stimulus and an end to it by mid-2014, if the needed recovery signs were provided.

The U.S. dollar index retreated from yesterdays freshly hit three-year high of 84.96, settling lower on the day. Today, the U.S. currency gauge extended losses, trading at 83.22 at 9:42 GMT, down 1.17% on the day. The dollar index ranged between days high and low of 84.26 and 82.60 respectively and is marking a 1.75% weekly decline so far.

He Shan, an analyst at Galaxy Futures Co. in Beijing, said for Bloomberg: “The comments give a boost to the commodities priced in the dollar. But the rally may not last long because investors still expect an exit next year.”

Record high import in China

Apart from being supported by its pricing factor, the weakened dollar, copper was boosted yesterday as China, the worlds top consumer, reported its imports of the metal reached a 9-month high in June on arbitrage. Also, according to data from Beijing Antaike Information Development Co., copper production in China reached a record 567 892 tons in May.

The industrial metal also drew support amid speculations that Chinas central bank, the Peoples Bank of China, will introduce fresh monetary easing measures to boost growth in the cooling Chinese economy. Yesterday, the General Administration of Customs reported the countrys June imports and exports declined, refuting expectations for an increase. On Tuesday, the National Bureau of Statistics reported that China’s Producer Price Index (PPI) showed the worst reading since 2002, dropping by 2.7% on an annual basis. Meanwhile, the IMF recently cut its growth forecast for the Asian country. All of Chinas preliminary July PMI readings and final June readings showed worse performance, compared to May.