Copper fell by almost 5 percent as rising London Metal Exchange stocks halted this week's short-covering rally in industrial metals. Higher stocks reminded investors yet again that demand for industrial metals is falling sharply and prices turned lower after rising by 3.5 percent to a 1-week high of $4,820 earlier. Prices have risen around 20 percent so far this week as investors have covered their short positions, but for the month prices are still down 30 percent, which at the end of the month could be the biggest fall in at least three decades. In early trade sentiment was supported by dollar weakness, with the U.S. currency posting its biggest one-day fall in 23 years against a basket of currencies after the Fed delivered an expected 50 point rate cut and China's central bank also cut rates.
Oil rose by more than a dollar to more than $68 a barrel boosted by a weak U.S. dollar and hopes that interest rate cuts in the U.S. and China would bolster the world economy. Oil has more than halved from its record high of $147.27 struck in July and is down by 30 percent so far this month, putting it on track for its biggest ever monthly fall.
The U.S. Federal Reserve cut interest rates by half a percentage point, taking its target for overnight bank lending to 1 percent, the lowest since 2004, in an attempt to revive the sagging economy. Also supporting oil were OPEC's decision last week to cut output by 1.5 million barrels per day, or about 5 percent, to prop up prices and hints that it may reduce supply further.
Gold prices hit a one-week high as the dollar posted its biggest one-day drop in 23 years and higher oil prices supported sentiment. Precious metal sentiment received a much needed boost yesterday as the dollar retreated after the Fed's rate cut of 50 basis points, to 1.0 percent. The Euro jumped against the dollar and the yen as a recovery in emerging assets helped ease fears about global financial woes, prompting investors to buy back the recently battered European single currency.
