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Metals Pull Back as Dollar Climbs

2 Mar 2017 11:36 am
By Ed Ballard 

LONDON--A resurgent dollar weighed on base and precious metals prices on Thursday.

Copper was down 0.2% at $6,002 a ton, with other industrial metals from aluminum to zinc losing between 0.1% and 0.5%. Gold was down 0.4% at 1,243.95 a troy ounce in late-morning trade, with silver, palladium and platinum down between 0.3% and 0.5%.

Gold's losses were kept in check by political uncertainty in the U.S. and Europe, while continuing supply disruption supported copper.

The WSJ Dollar Index was recently up 0.3%, its highest level since mid-January. The dollar is rising on expectations that the Federal Reserve will raise interest rates given strength in the U.S. economy.

As of Wednesday, markets were allocating a roughly two-thirds chance that the Fed will raise rates at its March 15-16 meeting, up from a 35% chance on Tuesday, according to data from CME Group.

A stronger dollar makes dollar-priced commodities more expensive for holders of other currencies. In the case of gold, higher rates can also reduce demand by increasing the returns on offer from yield-bearing assets.

The U.S. trading session will bring jobless claims statistics and a speech from Loretta Mester, president of the Federal Reserve Bank of Cleveland, who may join the chorus of Fed officials saying growth, inflation and employment in the U.S. warrant tighter monetary policy.

But despite the pressure from a stronger dollar, gold is holding on to its gains for the year. The metal is currently not far below its 2017 peak, when it topped $1,260 an ounce on Feb. 24.

"There is still a significant amount of underlying risk in the markets right now--largely political--which may explain why gold--a traditional safe haven asset--is only trading 1.5% below its near-four month high," wrote Craig Erlam, an analyst at Oanda Corp.

Analysts at Commerzbank said the precious metal is "holding its own amazingly well," saying demand is kicking in whenever the market dips. The bank also noted continuing inflows of money into exchange-traded funds that buy gold.

Copper continued to be buoyed by supply disruption at two huge mines. Commerzbank estimated that 60,000 tons of production have been lost due to a strike at the Escondida copper mine in Chile. Violent clashes between workers and the police were reported Thursday as the strike enters its fourth week.

Freeport-McMoRan Inc. remains locked in a standoff with the Indonesian government over permission to export copper concentrate produced at the Grasberg mine.

Brokerage firm Marex Spectron said the copper market is susceptible to some vicious moves making holding intraday positions difficult.

Write to Ed Ballard at ed.ballard@wsj.com

(END) Dow Jones Newswires

March 02, 2017 06:36 ET (11:36 GMT)

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