Forexpros – Copper futures declined on Tuesday, as a spike in Italian and Spanish borrowing costs reflected investors concerns over the region’s ongoing sovereign debt crisis, dampening the appeal of growth-related assets.
On the Comex division of the New York Mercantile Exchange, copper futures for December delivery traded at USD3.470 a pound during European morning trade, shedding 0.53%.
It earlier fell by as much as 0.68% to trade at USD3.464 a pound, the lowest price since November 11.
Concerns that the debt crisis in the euro zone is worsening were underscored after the yield on Italian five-year bonds spiked to a euro-era high of 6.29% on Monday, in the first Italian bond sale since former European Commissioner Mario Monti was appointed prime minister.
Italian 10-year bond yields continued to inch higher on Tuesday, climbing to 7.06%, a level widely considered unsustainable for continued borrowing.
Adding to concerns over the region’s debt crisis, the yield on 10-year Spanish government bonds rose to 6.31%, the highest since mid-July, while French 10-year bonds reached 3.6%, the highest since May 4.
The news prompted investors to shun riskier assets, such as stocks and commodities, and flock to traditional safe haven assets like the U.S. dollar.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.58% to trade at 78.09.
A stronger dollar reduces demand for raw materials as an alternative investment and makes dollar-priced commodities more expensive for holders of other currencies.
Prices remained supported as traders focused on Chinese demand prospects after Chile’s state-owned copper miner Codelco offered copper premiums for 2012 delivery to Chinese consumers at rates similar to this year, indicating demand is expected to remain strong next year.
Wall Street investment bank Goldman Sachs on Monday reiterated its “buy” rating on copper futures, saying that a loosening policy stance on credit in China should be sufficient to boost demand.
“We emphasize that emerging-market-led global economic growth, combined with material disappointments in copper production on weather disruptions, labor unrest and declining ore grades, suggest a continued deficit in the copper market in 2012,” the bank added.
Elsewhere on the Comex, gold for December delivery dropped 0.86% to trade at USD1,763.05 a troy ounce, while silver for December delivery slumped 0.53% to trade at USD33.84 a troy ounce.
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