Expectations of Stimulus & Low Interest Rates Support Gold, Silver & Copper

Copper continued to rally topping its highest level in 2016 as traders are expecting for increased demand and additional stimulus from the Chinese central bank will increase the value and demand for the orange metal. Bases metals on the whole are trading higher taking advantage of the lower US dollar. Traders have been buying up cheap commodities in the hopes of increasing prices.

China’s yuan touched a new 5-1/2-year low against the dollar for the second consecutive session on Monday on concerns that the central bank would tolerate a further weakening of the currency, as the bank appeared to have stood aside, traders said.

The yuan hit 6.6642 soon after the open due to a heavy bout of dollar buying in the market. That level was the weakest since December 2010. Despite the yuan’s continued slide, there were no signs of state banks’ intervention on behalf of the central bank, with some traders saying “this is a tacit approval from the central bank to let the yuan slide further.” “The market remains calm as usual,” said a trader from a Chinese commercial bank in Shanghai. “We all know that the yuan will weaken further. And the central bank got things under control.” Reuters reported on Thursday that the People’s Bank of China (PBOC) would tolerate a fall in the yuan to as low as 6.8 per dollar in 2016, policy sources said. That would equate to a depreciation of 4.5 percent for the year, the same as last year’s record decline of 4.5 percent.

Gold climbed to its highest price in more than two years driven by expectations that interest rates will remain lower for longer, boosting demand for the metal as a haven.

Gold gained 0.72% to $1352, the highest level since mid-March 2014. Prices soared following comments from Bank of England Governor Mark Carney at the end of last week implying that stimulus measures will be put in place over the summer. Analysts expect the Bank of Japan will also boost monetary stimulus soon.

“Despite the stronger U.S. dollar, the sentiment on the markets is friendly for gold, given the monetary policy to be expected,” said Eugen Weinberg, an analyst at Commerzbank AG.

Chinese economic data released on Friday recorded the largest manufacturing decline in the country in four months, suggesting the Beijing government could also introduce economic stimulus.

The price of silver surged to a two-year high on Monday as buyers in China made bold bets in the futures market and scooped up vast volumes of physical metal.

Spot silver, the price paid for immediate delivery, rose as much as 6.9% to an intraday peak of $21.132 a troy ounce, its highest value since July 2014, as the Shanghai-traded benchmark futures and physical silver contracts reached their limit. The $20 break triggered massive technical selling as silver plunged and then regained 342 on Tuesday morning to trade back at 19.93.

The US Dollar Index, a gauge reflecting the relative strength of the greenback against a basket of 6 other major currencies, was edging up 0.15% on the day at a level of 95.86, after climbing as high as 95.96 earlier. The index has dropped 0.35% so far during the current month, following a 0.33% gain in June.

CME’s Fed Watch tool revealed market players saw a 0% chance of a rate hike occurring at the Fed’s policy meeting in July and a 3% chance of a reduction in the target range for the federal funds rate.