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Bloomberg - Oct. 3

Gold Falls Most in Three Months as Crude-Oil Prices Plummet - By Pham-Duy Nguyen


Gold in New York tumbled the most in three months as plunging energy costs reduced the appeal of the precious metal as a hedge against inflation.

Gold is down 21 percent from a 26-year high of $732 an ounce on May 12, partly because the price of oil has dropped 24 percent from a record in July. Crude oil fell below $60 a barrel to a seven-month low on speculation fuel inventories are big enough to counter production cuts by Nigeria and Venezuela.

``Everybody is getting out of their positions,'' said Nick Ruggiero, a trader at Eagle Futures Inc. in New York. ``Crude came off almost $3 this week, and gold is following.''

Gold futures for December delivery fell $21.80, or 3.6 percent, to $581.50 an ounce on the Comex division of the New York Mercantile Exchange. The percentage drop was the biggest since June 13. Gold is still up 12 percent this year.

Some investors buy gold when energy expenses climb. Gold futures reached a record $873 an ounce in January 1980 when oil costs doubled in a year, sparking a surge in the inflation rate.

``With no sign of a turnaround in oil, gold is going to track it down further,'' said Frank McGhee, head metals trader at Integrated Brokerage Services Inc. in Chicago.

Losses accelerated after gold fell below $600.

``That was a big number,'' Ruggiero said. ``We had a lot of sell stops for long positions.''



Fewer Speculators

Hedge-fund managers and other large speculators decreased their net-long position in Comex gold futures in the week ended Sept. 26, Commodity Futures Trading Commission data showed on Sept.29.

Speculative long positions, or bets prices will rise, outnumbered short positions by 71,244 contracts. Net-long positions fell by 6,624 contracts, or 8.5 percent, from a week earlier to the lowest since August 2005, the data showed.

``All the funds are hitting the door at the same time,'' McGhee said.

Dennis Gartman, gold trader, economist and editor of the Suffolk, Virginia-based Gartman Letter, yesterday advised clients to reduce even their ``insurance'' position in gold.

``We moved to cut our insurance position in gold by half, given that the geopolitical situation seems almost daily to be less and less onerous,'' Gartman said in his report today. ``We fear that the rally of the last week was but another rally in a bear market and that it was wise to stand down.''



Slumping Quarter

Gold had gained as much as 39 percent this year on speculation that conflict over Iran's nuclear research program would cut oil supplies. The United Nations Security Council has yet to impose sanctions against Iran after an Aug. 31 deadline to suspend enrichment of uranium.

Gold fell 1.9 percent in the third quarter, the first drop since the first quarter of 2005. The Reuters/Jefferies CRB Index fell 12 percent, the biggest drop since at least 1956, data compiled by Bloomberg show.

Gold still may reach $700 this year and climb to the spot record of $850 next year as the dollar weakens, Citigroup Inc. analyst John H. Hill said in a report yesterday.

The end of the Federal Reserve's cycle of 17 interest rate increases in August ``may spark renewed bouts of dollar weakness,'' Hill said. ``Higher interest rates are a headwind for gold.''

Gold generally moves in the opposite direction of the dollar, which is down 6 percent this year against a basket of six major currencies.

Gold's recent decline is a correction within a bull market, said Phillips Baker, chief executive officer of Hecla Mining Co. in Coeur D'Alene, Idaho. The company mines gold and silver in the U.S., Mexico and Venezuela.



`Long-Term Bull Market'

``We're in a long-term bull market for gold,'' Baker said. ``You're going to have volatility. It's just the nature of the metals.''

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

Silver for December delivery fell 59.5 cents, or 5.1 percent, to $11.045 an ounce. Palladium for December dropped $12.15 or 3.9 percent, to $302 an ounce. Platinum for January declined $35.20, or 3 percent, to $1,124 an ounce.

Silver may rebound faster than gold because of its industrial component, Baker said.

``Certainly, it has volatility, but it has a lot more upside than it does downside,'' Baker said. ``I could see another $5 or $10 in the price of silver.''

Bloomberg - Oct. 3

Copper Drops to Three-Month Low on Concern U.S. Demand May Ease - By Chanyaporn Chanjaroen


Copper in New York tumbled more than 4 percent to the lowest in three months on speculation a slowdown in the U.S. economy may reduce demand for industrial metals.

The price of copper is down 19 percent from a record $4.04 a pound in mid-May. U.S. manufacturing expanded less than analysts estimated in September and spending on home construction dropped for a fifth straight month in August, reports showed yesterday.

``Any negative U.S. figures would have a knock-on effect on metals,'' said Michael Widmer, an analyst at Calyon in London. The reports ``were quite weak. They give an indication as to the health of the manufacturing sector. What we are seeing is prices actually start to reflect that,'' he said.

Copper futures for December delivery fell 14.7 cents, or 4.3 percent, to $3.2825 a pound on the Comex division of the New York Mercantile Exchange, the lowest since June 28. The percentage decline was the most since Aug. 11.

Prices still were up 61 percent this year. A futures contract is an obligation to buy or sell a commodity at a fixed price for a specific delivery date.

Copper for delivery in three months dropped $180, or 2.4 percent, to $7,340 a metric ton on the London Metal Exchange. Prices are up 92 percent from a year ago.

The Institute for Supply Management's manufacturing index fell to 52.9. The gauge was expected to fall to 53.5 from 54.5 the prior month, based on the median of 64 forecasts in a Bloomberg News survey. Private residential construction spending dropped 1.5 percent, the Commerce Department said yesterday.



`Concern Far From Over'

``The concern on the U.S. economy is far from over,'' said Roy Carson, a London-based analyst at Triland Metals Ltd. Triland is one of 11 companies that trade on the floor of the LME.

The International Copper Study Group yesterday forecast usage of the metal in China, the world's biggest consumer, will drop 1.8 percent this year.

Investors sold copper along with oil and other commodities today, said Edward Meir, an analyst at Man Financial Ltd. in Darien, Connecticut. Crude oil fell to a seven-month low on speculation that a government report will show that U.S. fuel inventories jumped.

The oil slump is ``exerting a spillover influence on the metals,'' Meir said in a report. ``Look for energy to influence the markets in the short-term.''

The Reuters/Jefferies CRB Index of 19 commodities fell 1.9 percent to 295.77, led by declines in silver, sugar and copper.

Industrial metals have dropped in the past four months after interest-rate increases worldwide spurred speculation that investment and consumer demand for the metals may dwindle.

The outlook for metals, including copper and nickel, is ``very strong'' in the next six months because miners are not producing enough to meet demand, Xstrata Plc Chief Executive Officer Mick Davis said today in an interview in London.

``I would be somewhat surprised if we ended up with a surplus next year'' of copper and nickel, Davis said.

Copper supplies from mines and scrap yards will outpace demand in 2007 by 176,000 metric tons, down from a surplus of 239,000 tons this year, the Copper Study Group said yesterday.

Bloomberg - Oct. 4 - By Tan Hwee Ann and Kazue Somiya


Crude oil fell the most in almost 14 months to below $59 a barrel on expectations a U.S. government report today will show a jump in fuel stockpiles. The falling oil prices reduced the need for investors to hold gold bullion as an inflation hedge.

``There's a little bit of bargain buying now, and hopefully the physical buyers will return at these gold prices,'' Jonathan Barratt, a founder of Commodity Broking Services, said in Sydney. ``But if crude oil is to continue the decline, so will gold.''

Gold for immediate delivery rose as much $3.00, or 0.5 percent, to $577.50 and traded at $577.00 at 11:51 a.m. Sydney time. It fell 3.7 percent yesterday, the most since June 13.

Gold for delivery in December fell as much as $3.00, or 0.5 percent, to $578.50 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange. It traded at $581.80 at 11:51 a.m. Sydney time.

Gold ``is tracking the downward trend in crude oil prices,'' said Mikikaru Amano, an analyst at Taiheiyo Bussan Co. in Tokyo. Oil prices ``are likely to keep declining as members of the Organization of Petroleum Exporting Countries, except for Nigeria and Venezuela, haven't cut production. Prices will head toward $55 a barrel.''

Supplies of distillate fuel in the U.S., which includes heating oil and diesel, and of gasoline, probably rose last week, according to the median of 12 responses in a Bloomberg News survey before the U.S. government report later today.

Crude oil for November delivery was at $58.38 a barrel, down 30 cents, or 0.5 percent, in after-hours electronic trading on the New York Mercantile Exchange at 11:51 a.m. Sydney time.

Yesterday, oil fell 3.9 percent to $58.68, the lowest close since Feb 16. It was the biggest one-day decline since Aug. 17, 2005.

Dow Jones Newswires - Wednesday, October 04

Oil May Send Gold As Low As $550 - Investec


Likely further oil retreat to around $55/bbl later in year expected to extend gold's pullback as inflation, geopolitical drivers continue to dissipate, says Investec Australia's Darren Heathcote; "it wouldn't surprise me to see gold suffer even more and possibly head toward targets at 560 and 550 dollars." However, $550 to find strong support; "based on fundamentals I think investors would be happier buying around those levels (and) the impetus would be more likely for a push up rather than down."

Dow Jones Newswires - Wednesday, October 04

Silver Charts Suggest More Selling Ahead


Silver looking technically weak after succumbing to gold, oil pressure overnight to close below key 200-day moving average level; last $10.85/oz, down another 11 cents. Needs to bounce back above $11.12 immediately or faces further weakness, says ScotiaMocatta in technical note. Pegs next support at $10.72, then $10.45.

Oil May Send Gold As Low As $550 - Investec

Dow Jones Newswires - Wednesday, October 04, 2006


Likely further oil retreat to around $55/bbl later in year expected to extend gold's pullback as inflation, geopolitical drivers continue to dissipate, says Investec Australia's Darren Heathcote; "it wouldn't surprise me to see gold suffer even more and possibly head toward targets at 560 and 550 dollars." However, $550 to find strong support; "based on fundamentals I think investors would be happier buying around those levels (and) the impetus would be more likely for a push up rather than down." Spot trades last at $575.80, down $1.10 on NY close.

Bloomberg - Oct. 4

Gold Falls on Signs Commodity Slump May Ease Inflation Pressure - By Pham-Duy Nguyen


Gold futures fell to the lowest since June on speculation a 16-month low in commodity prices will reduce the metal's appeal as a hedge against inflation.

The Reuters/Jefferies CRB Commodity Price Index dropped 2.1 percent yesterday and today touched 292.72, the lowest since June 2005. The index's 12 percent drop in the third quarter was the biggest in 50 years. Gold is down 23 percent from a 26-year high of $732 an ounce on May 12, partly because of a 26 percent drop in oil prices from a record in July.

``There's a liquidation in the commodities world that's brought on by moderating inflation,'' said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. ``That's not good for gold.''

Gold futures for December delivery fell $14.80, or 2.6 percent, to $566.70 an ounce on the Comex division of the New York Mercantile Exchange. Prices earlier touched $563.50, the lowest since June 15. A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

Oil yesterday touched a seven-month low, triggering a 3.6 percent decline, the biggest percentage drop since June 13.

Gold's losses accelerated today after crude fell below $58 a barrel for the first time since February following an Energy Department report that showed an unexpected gain in U.S. inventories.



`Following Oil'

``Gold is definitely following oil around,'' said Lesh. ``Right now, that's the main driver.''

Some investors buy gold when energy expenses climb. Gold futures reached a record $873 an ounce in January 1980 when oil costs doubled in a year, sparking a surge in the inflation rate.

Prices may plunge further after falling below the 200-day moving average, according to analysts who look at historical charts.

``The price action looks extremely poor,'' John Reade, an analyst at UBS AG, said in a report to clients.

Technical charts show a bearish trend forming for gold and other metals, said Dan Chesler, an independent analyst in Wellington, Florida, who studies historical price patterns.

Peter Grandich, publisher of the Grandich Letter, a financial newsletter in Perrineville, New Jersey, told clients in a report today that prices may fall to the June low of $546.40, and may even reach $500 before resuming their long-term rally.

``Gold is in one of its more defensive positions since the bull market began several years ago,'' Grandich said. ``There's not only been significant technical damage done short term, but the next few trading sessions are likely going to impact where we head for much of the balance of 2006.''

Silver for December delivery fell 25 cents, or 2.3 percent, to $10.795 an ounce on the Comex. Palladium for December delivery fell $9.80, or 3.2 percent, to $296.65 an ounce on the Comex, and platinum for January delivery fell $46.60, or 4.1 percent, to $1,082.40 an ounce.

Bloomberg - Oct. 4

Copper Prices Fall as Growth in U.S. Service Industries Slows - By Choy Leng Yeong and Claudia Carpenter


Copper fell to a three-month low after a report showed U.S. service industries expanded last month at the slowest pace in more than three years as a housing slump deepened.

The Institute for Supply Management's index of non- manufacturing businesses fell to 52.9 in September, the lowest since April 2003, from 57 in August. Readings above 50 indicate expansion. Copper has slumped 21 percent from a record $4.04 a pound in mid-May as the housing market in the U.S., the world's second-biggest user of the metal, weakened.

``Funds are selling metals on anticipation of an economic slowdown in the U.S.,'' said Chris Brodie, who manages Krom River Partners LLP, a commodity hedge fund in London. ``We've not been long on metals since July.''

Copper futures for December delivery fell 7.7 cents, or 2.4 percent, to $3.2055 a pound on the Comex division of the New York Mercantile Exchange, after reaching $3.185, the lowest since June 29. Prices are still up 57 percent this year.

On the London Metal Exchange, copper for delivery in three months fell $310, or 4.2 percent, to $7,030 a metric ton, the biggest one-day drop since Sept. 11.

The Institute for Supply Management's manufacturing index dropped to 52.9 in September, the lowest since May 2005, the institute said Oct. 2.

``All the manufacturing, ISM numbers have been pretty crummy,'' said Michael Purdy, a trader at ABN Amro Bank in New York.



Home Construction Slows

U.S. home construction fell at an annual rate of 11 percent in the second quarter, the biggest drop since 1995, Commerce Department figures last week showed. As much as 400 pounds of copper is used in the average U.S. house.

``As the U.S. slows, demand for Chinese exports is going to slow,'' said William Adams, an analyst at Basemetals.com in Saffron Walden, England.

Copper usage in China, the biggest user of the metal, will drop 1.8 percent this year, the Lisbon-based International Copper Study Group said this week.

The price decline may be limited on speculation that producers of wire and pipe will resume purchases to replenish falling stockpiles. Inventories tracked by metal exchanges in London, New York and Shanghai are down 81 percent in the past three years as supplies lagged behind demand.

``There are bound to be consumers short of material who think the price is better than it was the last couple of weeks,'' said David Thurtell, a London-based analyst at BNP Paribas, an associate broker and clearing member of the London Metal Exchange.

Elsewhere on the LME, aluminum fell $90 to $2,475 a ton, nickel plunged $675 to $28,075 a ton, zinc dropped $86 to $3,304 a ton and lead declined $23 to $1,352 a ton. Tin rose $25 to $8,900 a ton.

A futures contract is an obligation to buy or sell a commodity at a fixed price for a specific delivery date.

FT - October 4 2006 - By Chris Flood

Gold failed to rally in response to news of North Koreas planned nuclear test, falling fell 1.4 per cent to $566.10 a troy ounce. Traders said a test of the March low about $541 an ounce was possible if sentiment towards commodities continued to deteriorate.

The European Central Bank said about 2.5m tonnes of gold were sold in the final week of the Central Bank Gold Agreement, which allowed signatories to sell 500 tonnes in the year to September 26. Total CBGA sales were estimated at betwen 400 to 405 tonnes, well short of the 500 tonne quota allowed.

Fears that central banks would rush to sell gold approaching the deadline as the quota cannot be rolled over to the next year have cast a shadow over the market in recent weeks.

GFMS, the precious metals consultancy said under the remainder of the GBGA arrangements were are unlikely to reach quota either on an annual basis or for the full ve year agreement.

We are perhaps on the threshold of an era of more moderate net ofcial sector selling, said GFMS.

Silver eased 0.9 per cent to $10.67 a troy ounce. Platinum retreated 3.2 per cent to $1,079 while palladium and palladium fell 2.3 per cent to $293 a troy ounce.

Copper led a retreat across base meals as the red metal lost 3.5 per cent to $7,080 a tonne, its lowest level for three months.

Nickel fell 1.7 per cent to $28,200 a tonne while zinc fell 2.6 per cent in spite of continued reductions in LME stocks down a further 900 tonnes yesterday. Aluminium was 3.5 per cent weaker at $2,475 a tonne.

Reuters - Wed Oct 4, 2006

COMEX copper ends down 2 pct, slowdown fears weigh


Copper futures in New York ended down over 2 percent on Wednesday, in sympathy with steep declines in the energy and precious metals markets, sources said.

"It was not copper-specific selling today. Everything took a hit today. Oil slid below $58 and gold started to slide, so we just followed suit," said one COMEX floor dealer.

Copper for December delivery ended the day down 7.70 cents, or 2.3 percent, at $3.2055 a lb on the New York Mercantile Exchange's COMEX division, after dealing from a new 10-1/2 week low at $3.1850 to $3.3550.

Dealers now placed new support in December copper at the July 24 low at $3.1450 all the way down to $3.00, while resistance continued to be seen at around $3.50.

Spot October slipped 8.85 cents to its session low at $3.1980, while back month contracts closed down 5.05 to 7.70 cents.

COMEX final copper volume was estimated at 21,000 lots, more than the 15,354 lots recorded on Tuesday.

COMEX copper futures opened with modest gains on some light bargain buying and short-covering following the previous session's sharp losses. But they failed to build on early gains and began their descent after weaker-than-expected U.S. economic data reinforced concerns over a slowing economy.

The Institute for Supply Management said its gauge of the services sector, which accounts for about 80 percent of the U.S. economy, slipped in September more than economists had expected.

"Concerns of macro-slowdowns will continue to limit the interest in this market. Until we see a change in the economic outlook, we will likely continue to trade in this recent range and testing new lows if data continues to come in weaker than expected," said one commodity broker.

Meanwhile, Chile's Codelco, the world's largest copper producer, set European annual copper premiums at a record $125 a tonne for 2007, up $20 from 2006, and U.S. premiums at 4.50 cents/lb ($100 a tonne) versus 4.25 cents for 2006.

LME three-months copper plummeted $310, or 4.2 percent, to settle Wednesday at $7,030 a tonne.

physorg.com - 4 October 2006

Less expensive fuel cell may be possible


Scientists at Los Alamos National Laboratory have developed a new class of hydrogen fuel-cell catalysts that exhibit promising activity and stability. The catalysts are made of low-cost nonprecious metals entrapped in something called a heteroatomic-polymer structure, instead of platinum materials typically used in fuel cells.

In research published recently in the scientific journal Nature, Los Alamos scientists Rajesh Bashyam and Piotr Zelenay describe tests conducted on a cobalt-polypyrrole-carbon (Co-PPY-XC72) composite. The composite, consisting of cobalt, polymer and carbon, was developed in research aimed at developing low-cost non-platinum catalysts for the polymer electrolyte fuel-cell (PEFC) cathode.

While the electrical energy producing activity of the catalyst is lower than that of platinum-based catalysts used in polymer electrolyte fuel cells, the new material shows exceptional performance stability for over one hundred hours of continuous testing, a result never before obtained with non-precious metal catalysts in PEFCs.

"Besides being made of inexpensive and environmentally benign materials," said Zelenay, "the chief advantage of these composite catalysts for oxygen reduction is that they can operate in the acidic environment of the polymer electrolyte fuel cell."

Bashyam and Zelenay are investigating the nature of catalysts in a variety of composites. They are also part of a larger Laboratory effort aimed at developing new catalyst and electrode structures that could increase the current output from fuel cells.

According to Ken Stroh, program manager for the Los Alamos fuel-cell effort, "The two biggest obstacles in making a commercially viable fuel cell have traditionally been high cost and inadequate durability. Our focus at Los Alamos is to attack those obstacles as a system in which you simultaneously strive for lower costs and higher durability."

Source: Globe and Mail - 4 October 2006

Commodity bear market begins now: Merrill


Commodity prices are due for a "protracted bear market" after speculators drove prices artificially high in recent months, Merrill Lynch & Co.'s chief investment strategist said Wednesday.

"We commented early last month that the level of speculation in commodities was at an all-time high," said Richard Bernstein in a report. "Despite September's pullback in overall commodity prices, the level of speculation has actually risen!"

Merrill was not the only brokerage betting that the commodity space is getting riskier. An RBC Dominion Securities analyst turned bearish on the Canadian oil field services sector Wednesday, urging investors to view companies working in the field with caution, given the sharp drop in natural gas prices.

"In light of further risks to gas prices, exploration and production spending, and pressures on service pricing and margins created by potentially lower activity levels and more capacity, defensiveness and caution should continue to be the main theme over the next 6-9 months," RBC's Angela Guo wrote in a note.

Merrill's Mr. Bernstein measured the level of speculation in the market by comparing spot prices of commodities that trade exchange-listed futures with spot prices of commodities that do not. He believes that speculation is more likely to occur in the futures markets than in the physical markets.

"By our reckoning, commodities' prices are now about 60 per cent above what could be explained by fundamental supply and demand," the Merrill report said.

Its research suggests that September's drop in commodity prices might "only be the beginning" of a long-term drop in prices.

"We find it amusing that a consensus has now formed that housing is speculative and overdue for an extended pullback, yet many commodities have appreciated much more than housing has, and have done so in a shorter period of time," Mr. Bernstein said.

"Housing is speculative, but commodities are purely a fundamental story? We disagree."

The report comes a day after Merrill's U.S. sector strategist Brian Belski downgraded the U.S. energy sector to "underweight." He predicted the energy sector will underperform the stock market over the coming months.

RBC took a closer look at investing in the companies that provide products and services for the major oil and natural gas companies. The sector has provided another way for investors to profit from the boom in the resource sector.

But the price of natural gas the most common U.S. home heating fuel has dropped nearly 25 per cent since August 1 to its lowest level in nearly two years as North American inventories swelled on the extended warm weather. The drop in natural gas has forced some companies such as Canadian Natural Resources Ltd. to slash their natural-gas drilling plans.

RBC's Ms. Guo said a new look at the risk-reward profile of companies in the oil-field services sector triggered wide-spread downgrades in the sector.

Akita Drilling Ltd., Trinidad Energy Trust, Mullen Group Income Fund, Pason Systems Inc., CHC Helicopter Corp., and Flint Energy Services Ltd. were all downgraded to 'underperform.' Ensign Energy Services Inc., Precision Drilling Trust, Calfrac Well Services Ltd., Trican Well Service Ltd., Cathedral Energy Services Income Trust, and Total Energy Services were all cut to 'sector perform.'

Although the sector looks cheap now, there is no compelling reason to pick up the stocks, Ms. Guo said, nothing that a lack of near-term positive catalysts and continued uncertainty on earnings estimates will likely keep the sector depressed.

"As a dramatic measure of maximum risks should the oil price fall significantly due to macro economic reasons, while the gas price dips further due to a warm winter, applying the historical trough trailing multiples to the stocks would imply an average downside of 24 per cent for the sector from current levels."

Ms. Guo left her 'outperform' recommendations on Savanna Energy Services Corp., Enerflex Systems Ltd., CCS Income Trust and ShawCor Ltd., saying the stocks were already either oversold or more defensive in nature.

The last four companies have a more "favourable" relative risk-reward profiles when compared with the rest of their peer group and could be purchased by "value-oriented investors seeking exposures to the sector," she said.

Daily Telegraph - 05/10/2006

Angry copper users force inquiry into metal exchange - By Ambrose Evans-Pritchard


The London Metal Exchange is to face an European Union investigation over alleged monopoly practices after receiving a dossier of complaints from angry copper users. The International Wrought Copper Council has accused the LME and its network of warehouses of exploiting a stranglehold on the market to push up charges and boost profits for brokers.

The EU's competition directorate is examining whether the LME breached Articles 81 and 82 of EU treaty law banning the restriction of the free market and abuse of dominant position. A Commission spokesman confirmed the investigation but said the details were confidential.

Simon Payton, the IWCC's secretary-general, said the complaint stemmed from a long-running battle with the LME over warehouse practices and had nothing to do with the soaring price of copper, which has quadrupled in four years. The LME handles 90pc of copper and almost 100pc of aluminium traded across the world at its raucous sessions, where traders bark orders inside a ring of leather seats. Turnover last year as the commodity boom reached fever pitch was a staggering $4,500bn (2,390bn).

The exchange has been locked in conflict for years with the IWCC, a group top-heavy with European industrial users said to resent the dominant role of London. This year the IWCC issued a thinly-veiled threat to take its business elsewhere, complaining that hedge funds and speculators had driven copper prices far above its value in a "feeding frenzy".

In a letter to the Financial Services Authority, it said industrial users were struggling to finance deliveries as prices gyrated wildly, sometimes rising and falling as much as $500 a tonne in a single day. "This market, where speculators can buy what does not exist, is doing serious damage to our industry and will bring into question whether the LME copper price should continue to be the recognised reference price," it said.

The LME said it was baffled by the EU complaint, insisting that it set the overall standard of warehouses but did not fix the fees. "We don't own the warehouses and we cannot tell them what to charge. It's a free market with completely free competition," said a spokesman.

Robin Bhar, a base metals analyst at UBS, said the copper users were alone in their fury. "They seem to have a real gripe with the LME even though charges have come down. I've not heard protests from aluminium or zinc users, or trade associations," he said.

The copper price was trading at $7,391 a tonne yesterday. Although down 8pc from its peak in May, it has held up better than oil and most other commodities as economic growth continues to steam ahead in China and India.

However, the high price is leading to a steady switch to fibre optic and wireless technologies that use less metal, while air-conditioner manufacturers, who account for 5pc of the global market, are learning to use much thinner tubes.

Chinese copper enterprises cut production to resist raw material price hike


Some of China's copper melting enterprises have begun to cut their production in an effort to resist price hikes of imported raw materials, according to sources from the copper industry.

A senior manager of a Chinese copper company said this move is in response to BHP Billiton's cancel of price participation article and suppress of copper processing fees.

He said over the past more than 30 years, raw material suppliers and melting companies have always pursued the price participation article. But recently the BHP Billiton not only largely suppressed the processing fees, but also unilaterally proposed to cancel the PP article in a bid to solely enjoy the huge profits brought about by copper price hikes.

"This is unprecedented in international negotiations, it is harmful to the mutually-beneficial cooperation and friendship between suppliers and melting companies, and is a malicious damage to long-term contract structure," he said.

Head of the China Smeltery Purchase Team (CSPT) Yang Jun said if there is no PP article, what smelting enterprises get can not even meet their production cost.

In a CSPT meeting held on Sept. 26, the nine member enterprises all demanded to raise processing fees to a reasonable level, he said. The nine enterprises account for over 80 percent of China's imported copper raw materials.

AFX News Limited - 10.06.2006

China's copper smelters cut output after BHP abrogation of price deal - report


BEIJING (XFN-ASIA) - Some copper smelters have begun to reduce output as a result of a key offshore supplier BHP Billiton abrogating an agreement which has pushed up the cost of processing the metal, the China Daily reported, citing sources from the copper industry.

One manager from a local smelting company told the newspaper that the production cuts follow BHP Billiton's unilateral decision not to follow a price participation agreement and its decision to cut its copper processing payments.

The manager said for more than 30 years, raw material suppliers and smelting companies have abided by the PP agreement. But recently he claimed Billiton decided it would no longer follow the agreement and would also cut copper processing payments in order to maximise income from the present high global price for the metal.

'This is unprecedented in international negotiations, and is harmful to the mutually-beneficial cooperation and friendship of copper suppliers and melters,' the manager was quoted as saying, adding it would damage long term contracts.

The report also cited the head of the China Smeltery Purchase Team, Yang Jun, as saying without the PP agreement smelters will not even be able to meet the cost of production.

Oct. 6 (Bloomberg)

Gold Drops in Asia as Oil Slips, Investors Deem Gains Overdone - By Tan Hwee Ann and Thomas Kutty Abraham


Gold fell in Asia as oil prices declined and some investors deemed yesterday's rally in the precious metal overdone.

Gold, which is seen as a hedge against inflation, has dropped 20 percent from a 26-year high of $732 an ounce on May 12, falling in line with oil's 23 percent drop since it reached a record July 14. Gold, which rose 1.3 percent yesterday, is heading for a fall of 4.6 percent this week.

``It continues to be influenced by the oil market,'' said Mark Pervan, head of research at Daiwa Securities SMBC, in Melbourne. ``It's been volatile and sentiment is swinging day to day.''

Gold for immediate delivery fell as much as $5.10, or 0.9 percent, to $569.20 an ounce and was trading at $571.20 at 11.10 a.m. Mumbai time.

The metal's five-day moving average price has been trading below its 200-day moving average since Sept. 13. The pattern suggests bullion may have slipped into a declining trend, some traders said. Its five-day moving average is $576.82 an ounce, compared with the 200-day figure of $600.80.

Spot gold prices touched $559.40 an ounce on Oct. 4, the lowest since June 15.

``Liquidation by funds will continue as there are no recovery signals in horizon,'' Kishore Narne, head of research at Anand Rathi Commodities Ltd., said in Mumbai. ``I expect gold to drop to $535-540 levels in the next two-three weeks.''

Gold for delivery in December traded at $575.40, little changed from yesterday's close, at 11:10 a.m. Mumbai time in after-hours electronic trade on the Comex division of the New York Mercantile Exchange.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

In India, the price of the metal for December delivery fell 15 rupees, or 0.2 percent, to 8,718 rupees per 10 grams, or 27,113 ($594) an ounce, at 11:15 a.m. Mumbai time on the Multi Commodity Exchange.

Oct. 6 (Bloomberg)

Copper Declines in Asia After Trader Charts Give Sell Signals - By Feiwen Rong


Copper in Asia declined after charts some traders use to predict price movements gave sell signals.

A price movement ``above $7,400 is needed to reverse the downtrend since Sept. 27,'' analysts at Barclays Capital in London said in an e-mailed report yesterday. Without such a movement, ``the market is precariously on edge.''

Copper futures on the London Metal Exchange fell as much as $29, or 0.4 percent, to $7,270 a metric ton, and traded at $7,275 at 11:37 a.m. Singapore time.

Daily Telegraph - 06/10/2006

Banks may be behind plunge in gold price - By Ambrose Evans-Pritchard


Central banks may have dumped far more gold on the markets over the last three weeks than officially reported, accounting for the sudden plunge in prices that has stunned investors.
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Barclays Capital said Europe's banks had sold an extra 100 tonnes from reserves in a rush to meet a quota deadline on Sept 26, but had done so by selling through forward contracts that disguised the effect.

"We have been able to infer this from trading patterns. It has had a major impact on the markets," said Costanza Jacazio, the bank's gold expert. Barclays is one of the world's three top bullion traders.

"We suspect that the Banque de France has been involved," she said.

The huge sales would help explain gold's brutal fall from $640 an ounce in early September to $559 this week, an effect compounded in recent days by hedge fund liquidation. It was up slightly yesterday at $569.75 in New York trading.

Gold typically rallies in September in the build-up to the Indian marriage season. While gold has undoubtedly been hit by the broader fears of a commodity slump, base metals have held up much better. The central banks have reported sales of just 393 tonnes of gold for the year, far below the 500 annual limit agreed under the Washington Accord, and agreement by 15 central banks in Europe.

Barclays said the group had in reality met the 500 tonne limit, with others snapping up the unused quota of the Bundesbank - which has balked at selling in order to assert its independence against Berlin's politicians.

"We believe this is actually very bullish for gold because it shows that the sell-off was not driven by investors," said Ms Jacazio.

Philip Klapwijk, chairman of the precious metals group GFMS, said bullion would soon resume its five-year bull market. "The game is not over for gold. We've still got a big dollar devaluation ahead," he said.

Reuters - Fri Oct 6, 2006 11:59 PM - By Vivianne Rodrigues


A rally in U.S. stocks that pushed the Dow industrials to a record may stall next week as signs of an economic slowdown curb the appetite for equities just as the third quarter's earnings season gets under way.

This week, the blue-chip Dow Jones industrial average hit a record closing high and an all-time intraday high for three days in a row in a rally driven by a sharp drop in oil prices and expectations that the Federal Reserve will not raise interest rates in the near future.

The rally also propelled the Standard & Poor's 500 Index to fresh 5-1/2-year highs more than once.

But on Friday, weaker-than-expected September employment data, following a White House forecast for slower GDP growth late on Thursday, brought the rally to a halt and may drag stocks lower in the week ahead, analysts said.

"We had a long run in equities and we're probably due for a sell no matter what the news is," said Elliot Spar, market strategist at Ryan Beck & Co., in Shrewsbury, New Jersey. "If the economy is going to go down, then you have to worry about earnings momentum."

Investors will scrutinize corporate profits next week, Spar said, as the earnings season heats up, with Alcoa Inc., Costco Wholesale Corp. PepsiCo Inc. and General Electric Co., slated to report.

Trading may be lighter than usual on Monday as the U.S. bond market will be closed in observance of the Columbus Day holiday. The U.S. stock market will remain open.


BEWARE OF THE JINX MONTH

For the week, stocks rose -- with the Dow up 1.5 percent, the S&P 500 up 1 percent and the Nasdaq up 1.8 percent.

The Dow average closed at record highs three times in the week, with an intraday high on Thursday at 11,870.06, its highest level since Jan. 14, 2000. On Thursday, the S&P 500 closed at 1,353.22 and peaked intraday at 1,353.79 -- with those levels marking the highest since Feb. 5, 2001.

For the year to date, the Dow is up 10.6 percent, the S&P 500 is up 8.1 percent and the Nasdaq is up 4.3 percent.

After stocks broke new ground last week, some investors may be more cautious during the rest of October, known as "the jinx month," according to the Stock Trader's Almanac, because of stock market crashes in 1929 and 1987.

Volatility may increase early this week, traders said, with the possibility of a nuclear weapon test by North Korea over the weekend.

"If they do go ahead with the test, the stock market may get a bit more skittish," said Tim Smalls, head of U.S. stock trading at brokerage firm Execution LLC in Greenwich, Connecticut. "It's just one thing we don't need right now."

The White House said on Friday that it had no new information to disclose about whether a nuclear test was being planned, but said North Korea should not carry out the test.

On Friday, U.S. crude oil for November delivery settled at $59.76 per barrel -- down 5 percent for the week. NYMEX crude is down 24 percent from its record set in July.


EARNINGS ON FRONT BURNER

On Tuesday, the third-quarter earnings season kicks off for blue chips with Alcoa reporting results, followed by General Electric on Friday.

"Earnings have been on the back burner, and they move to the front very soon," said Michael Panzner, vice president of sales trading at Collins Stewart in New York. "I have a funny feeling things haven't been particularly great."

S&P 500 companies are expected to achieve third-quarter earnings growth of 14.1 percent from a year earlier, according to Reuters Estimates. Meanwhile, pre-announcement activity for U.S. companies stayed negative for the week ended Sept. 29.


FOMC MINUTES, RETAIL SALES AHEAD

Next week's economic data could help investors assess the likely magnitude of consumer spending before the start of the holiday season as well as the Fed's view of the economy.

On Tuesday, the government releases its report on wholesale inventories for August. Economists polled by Reuters expect inventories to rise 0.7 percent, down from a 0.8 percent gain in the previous month.

Minutes of the Federal Open Market Committee's Sept. 20 meeting will be released on Wednesday and the Fed's Beige Book -- a survey of economic conditions in the Fed's 12 districts -- will follow on Thursday.

The international trade deficit for August, also due on Thursday, is forecast at $66.70 billion, down from $68 billion in July, according to the Reuters poll.

A slew of data is due on Friday, including import prices, retail sales and the University of Michigan's reading on consumer confidence.

Import prices likely shrank 1.2 percent in September, after a 0.8 percent gain in the previous month, according to the estimates of economists surveyed by Reuters.

Retail sales for September are forecast to rise 0.2 percent, matching a 0.2 percent gain in August, according to economists polled by Reuters. Excluding auto sales, September's retail sales are seen unchanged, compared with a 0.2 percent gain the previous month.

The preliminary October reading of the University of Michigan's consumer sentiment index probably will show a rise to 86.5 from 85.4 in September, according to the Reuters poll.

Bloomberg - 6 October 2006

Zambia plans to raise copper-mining tax to 2,5%


Zambia's former Finance Minister Ngandu Magande said the country plans to increase the sales tax paid by copper and cobalt mining companies to 2,5 percent, Reuters reported, citing an interview with Magande.

The company currently charges them 0,6 percent, the newswire said on Thursday. Magande is expected to retain his post as finance minister after President Levy Mwanawasa, re-elected on Oct. 2, names his new cabinet, it added.

The country will also force the companies to increase the pay of qualified Zambians to match the salaries of expatriate workers, Reuters said.

Zambia plans to increase economic growth to between 7 percent and 8 percent, from current levels of 5 percent, the newswire said.