The prices of base and non-ferrous metals have suffered from increasing sales pressure during the last few weeks. Fears of another recession in the US – as well as concerns about European sovereign debt – are major contributors to bearish sentiment on the likes of copper, zinc, lead, nickel and aluminum.
German chancellor Angela Merkel has once again reiterated in the past week her opposition to the issuance of so-called “eurobonds”, and fears of an imminent Greek default are spreading in financial markets. Government cutbacks are causing widespread anger among the Greek population, with many resentful that these measures are being imposed by the European Union and the International Monetary Fund. Interest rates on both short-term and long-term government bonds indicate that national bankruptcy is inevitable.
According to market observers, a chain reaction of defaults could be unleashed if European policy makers cannot agree on further measures to rescue the highly indebted Greek state. Otherwise, Europe’s fragile banks and insurers – whose portfolios are full of Greek government bonds – may be forced over a cliff. This would almost certainly lead to problems in the US banking sector, while another freeze of global credit markets and reduced activities in interbank markets would mean that economic growth rates would be adversely affected in the emerging markets. Even three years after the height of the global financial crisis most emerging markets are still too focused on promoting exports. Since domestic consumption in the so-called BRIC countries (Brazil, Russia, India and China) is not resistant enough to withstand external shocks, observers expect commodity price to be hit by a significant drop in demand.
The copper price lost ground again on Monday and ended the trading session at its lowest level since November of last year. The futures contract for three-month delivery fell in yesterday's trade to $8,332 per ton. The zinc price dropped to a one-month low. Share prices of most base and non-ferrous metal producers were also under sales pressure on Monday, something which hit many Toronto Stock Exchange companies particularly hard.
The precious metals sector lost ground as well yesterday with gold dropping to $1,780 per troy ounce. Neither the technical situation of the silver nor the palladium price is providing investors with good reasons to be optimistic. The palladium price fell to a low of $710 per ounce in yesterday's trading session and ended the day at $715 per ounce. Palladium has reached a critical technical level that bulls must defend; otherwise, investors should be prepared for an even greater price pullback in the coming weeks.
The silver price may face similar threats after the level of $40 per ounce was again broken to the downside. In the worst-case scenario, some analysts have warned that the white metal could face a further price setback to $25 to $27 per ounce in the coming weeks.