Written by Sumit Roy  |

November 03, 2011

Market Wrap: Gold ($1763) Rallies To 6-Week High After ECB Cuts Rates, Brent Nears $111

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Commodities rose across the board on hopes that Greece can avoid a referendum and after the ECB unexpectedly cut rates.

Hopes that Greek Prime Minister Papandreou's proposed referendum on the country's bailout can be avoided helped boost risk asset prices for a second day today. Speculation is mounting that Papandreou may not survive a confidence vote scheduled for Friday after several of his fellow party members, and even his finance minister, have come out against the referendum.

Other eurozone members have drawn a hard line in response to Papandreou's gambit, saying that Greece will not receive any more bailout funds until the issue is sorted out one way or another. Officials say that the country will run out of money by the middle of this month without additional aid, putting pressure on Greek leaders to resolve the referendum issue quickly.

In other European news, the ECB cut its benchmark overnight interest rate by 25 basis points to 1.25 percent in a surprise move. This was the first interest rate decision under the leadership of Mario Draghi from Italy, who took over from Jean-Claude Trichet earlier this week. The rate cut was a significant about-face for the central bank, which last raised rates only a few months ago back in July. Weakening economic growth and the ongoing sovereign debt crisis have taken their toll on growth in the eurozone, compelling the ECB to loosen monetary policy.

Meanwhile, Italian 10-year bond yields hit a euro-era record 6.4 percent overnight before backing down to last trade unchanged at 6.19 percent. Spanish 10-year bond yields were last trading up 4 basis points to 5.50 percent. The U.S. Dollar Index fell by 0.39 percent to 76.72.

• Gold hit the highest level since Sept. 22 today as the interest rate cut by the ECB sparked a rally. Gold was last trading up by $24.67, or 1.42 percent, to $1763.28/oz. Silver added $0.23, or 0.68 percent, to $34.50; platinum gained $36, or 2.24 percent, to $1639.75; and palladium rallied $4.88, or 0.75 percent, to $656.88.
  
  
• Crude oil was solidly higher today as Brent continues to consolidate in a narrow range near $110/bbl. The benchmark was last trading up by $1.54, or 1.41 percent, to $110.87, while WTI advanced $1.56, or 1.69 percent, to $94.07. "Market sentiment about the success of the [European] rescue package seems to change within hours," said Carsten Fritsch, an analyst at Commerzbank. "We expect Europe to slip into recession, but it will be just a brief and shallow one."
  
  
• Copper lagged today but eked out a $0.01, or 0.17 percent, gain to last trade at $3.58/lb on COMEX. "If we look at industrial metals' specific fundamentals, we find that they are mostly positive for prices," said Credit Suisse. "For instance, inventories of aluminum, copper, nickel, tin and even zinc have continued to fall. Availability is deteriorating...This positive fundamental backdrop contrasts the prevailing uncertainty regarding the economic outlook and the policy measures surrounding the European debt crisis."
  
  
• Grains were all higher today, with corn rallying $0.09, or 1.4 percent, to $6.54/bushel, while soybeans jumped $0.26, or 2.16 percent, to $12.19, and wheat advanced $0.12, or 1.96 percent, to $6.36.
  
  A survey of farmers showed that output of corn in China, the second-biggest producer and consumer of the grain, rose by 6.7 percent this year to 189.18 million metric tons (7.5 billion bushels). That is above the 182 million metric tons that the United States Department of Agriculture forecast in its last World Supply and Demand Estimates.