London Metal Exchange three-month copper surged to a near-three-week high Thursday with economic data the catalyst for fresh position-taking, market partipants said.

Copper prices traded in a narrow range for much of the morning session, only surging mid-afternoon following bullish economic data, including an upward revision in first-quarter U.S. GDP figures.

In addition, the anticipation of the Federal Reserve rate decision later Thursday, in which the Fed is expected to hike key interest rates, has also brought fresh money to the market, traders said. Broad commodities-based buying was linked to market anticipation that the officials' commentary from the FOMC meeting won't be overly hawkish, according to Triland Metals Ltd.

Copper prices touched an intraday high of $7,375/ton late afternoon, helped by short-covering and the triggering of upside stops, traders said. Prices closed at $7,300/ton at the PM kerb, up $400, or 5.8% on Wednesday's PM kerb prices.

The remainder of base metals followed copper's move higher with zinc recording the sharpest intraday gains after copper. Zinc prices firmed to $3,105/ton, up $160, or 5.4% on the previous PM kerb prices. Aluminium prices finished the kerb at $2,550/ton, up $68 on previous kerb prices and $20 shy of its intraday high.

The move higher in metals Thursday was a sharp reversal of the bearish sentiment brought about by consecutive sessions of lackluster, range-bound trading in recent days, market participants said.

"Prices were looking lower and now we find prices are getting a lift from data – not in great volumes – but enough to trigger stops," said one trader.

Despite higher prices, some traders say higher prices are unsustainable because of thin volumes.

"I still remain a little bit untrusting of these prices because there's very little volume going through," said another trader.

Copper prices in London surged almost 6 percent, the most in a month, on speculation demand will outpace supplies in the second half of 2006. Zinc, nickel and aluminium also gained.

Inventories of copper monitored by the London Metal Exchange have tumbled 16 percent this month. Supplies of copper, used in plumbing and wiring, will fall short of demand by 200,000 metric tons this year, Mitsui Bussan Commodities, a unit of Japan's second-largest trading company, said yesterday.

"The market is coming back to the view that supply is tight," said Peter Hickson, a strategist at UBS AG in London.

Copper for delivery in three months jumped $400, or 5.8 percent, to $7,300 a metric ton on the LME, the biggest percentage gain since May 23. Prices reached a record $8,800 a ton on May 11.

A gain above $7,200 a ton triggered more buying by investors who follow price charts, said Michael Skinner, a London-based analyst at Standard Bank London Ltd. Purchases by funds also boosted prices, said Scott Meyers, a New York-based trader at Man Financial Ltd.

Copper closed at $6,709 on June 22, down 24 percent from the mid-May record on concern higher global interest rates intended to combat inflation will slow economic growth and curb demand for commodities.

Nickel prices rose $350, or 1.7 percent, to $20,750 a ton. Prices have climbed 41 percent from a year ago.

"There's no question that fundamentals are looking pretty attractive," said Tony Warwick-Ching, an analyst at CRU International, a London-based consulting company. "The markets are still saluting that."
Nickel inventories

Inventories plunged 70 percent this year to 10,548 tons, equal to less than three days of global use. Demand will exceed output by 15,000 tons in 2006, Credit Suisse Group said earlier this month. Nickel is used to make stainless steel rustproof and malleable.

Stainless-steel production is soaring in Asia on demand for the metal used in construction, kitchen appliances and cutlery. Global stainless-steel output will rise 8.9 percent to 26.4 million tons this year, led by a 10 percent gain in Asia, the International Stainless Steel Forum said June 19.

Aluminium gained $72, or 2.9 percent, to $2,555 a ton. Zinc climbed $155, or 5.3 percent, to $3,100 a ton.

On the Comex division of the New York Mercantile Exchange, copper futures for September delivery surged 13.4 cents, or 4.2 percent, to $3.305 a pound. Prices have more than doubled in the past year.

Gold futures climbed back above $600 an ounce in electronic trade Thursday, after the Federal Reserve raised interest rates by a quarter percentage point as expected and came across as less hawkish than anticipated, sending the dollar sharply lower

Gold for August delivery touched a high of $602.90 an ounce in late afternoon trade, breaking through $600 for the first time since June. Earlier, it had closed official trade up $7.90 at $588.90 on the New York Mercantile Exchange.

Other metals prices were mixed. July silver closed up 17.8 cents at $10.333 an ounce, July platinum closed up $27.50 at $1,205.7 an ounce and September palladium ended up 60 cents at $313.40 an ounce. July copper edged up 13 cents at $3.423 a pound.
Fed less hawkish than expected

The Federal Open Market Committee raised interest rates by 25 basis points to 5.25%, the highest level since March 2001. "Some inflation risks remain," the committee said in a statement, which analysts viewed as less hawkish than expected.

"The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information," the committee said.

"The quarter-point interest rate raise by the Fed and its softer-tone policy statement have removed any fears that gold would be strangled by sharply higher interest rates and the U.S. dollar," said Peter Grandich, editor of The Grandich Letter.

A more aggressive move, "would be bearish for the price of gold," said Amaury Conti, equity trader at Austin Calvert-Flavin. "The Fed is still looking at a lot of data and people will continue to discuss what the Fed will do over the next couple of weeks."

For now, "$600 may be the top of the trading range," Conti said, adding that the positive trends in metals of the last few days will most likely continue given rising oil prices and the weakness of the dollar.

The dollar plunged to one-week lows against the euro and yen right after the Federal Reserve decision, prompting speculations by analysts about a possible surge in gold prices.

With Tuesday's $599 price now breached, "there's a decent chance that the rally can continue right up to major resistance at 609.40, which is the 100-day moving average," said Dale F. Doelling, chief market technician at Trends In Commodities.

However, "if gold is going to test that resistance level, it will take some serious fund buying along with continued dollar weakness, which just hasn't been evident of late."

In another development that strengthened gold, crude oil futures hit a three-week high above $73 a barrel Thursday after Energy Department data indicated the largest weekly drop in crude supplies since last November. The drop was attributed mostly to the shutdown of a key Louisiana channel and the resulting decline in production at four local refineries.

Crude for August delivery was last trading up $1.16, or 1.6%, at $73.35 a barrel.

On the supply side, gold inventories were unchanged at 8.03 million troy ounces as of late Wednesday, according to Nymex data. Silver supplies fell by 68,563 troy ounces to 102.7 million and copper inventories were flat at 8, 174 short tons.

Metals trading on NYMEX will close early Friday and will remain closed on both Monday and Tuesday. On Friday, aluminium and palladium will close at 12 noon Eastern, copper and silver at 12:05 p.m., and platinum and gold at 12:10 p.m.

Unionized workers at Chilean mining company Minera Escondida Ltda. expect the company to respond to their contract demands by July 5, a union leader said Thursday.

The workers handed the company their demands last Thursday and so far hadn't had any comments from the company, Escondida union treasurer Pedro Marin told Dow Jones Newswires.

The sole union at Chilean copper mine Escondida seeks a 13% pay increase and a $29,299-per-person bonus, the union said Wednesday.

The 2,055 miners that make up the union and represent 97% of union-eligible workers at the mine argue that the city of Antofagasta is the second most expensive in the country and that their wages must be adjusted accordingly.

The bonus sought as the sum of a copper-price bonus and the end-of-conflict bonus miners usually receive after successfully completing negotiations represents 5.4% of Escondida's first-quarter profits, the union said recently.

The miners' contracts expire Aug. 2.

In their previous contract negotiations in 2003, when copper prices averaged $0.66 a pound, Escondida workers obtained a 1.5% wage increase.

Copper prices have soared since mid-2003, with periodic labor disputes contributing to price spikes. In recent months, copper has hovered over $3 a pound, reaching a record $4.00 a pound mid-May.

A strike, however, isn't immediate as according to Chilean labor laws, a walkout could only start after contracts expire. The law also allows for two five-day mediation periods after the contract expiration date to avert a possible strike.

Escondida is the world's largest privately owned copper mine. It produced 1,271,472 metric tons of copper last year, as well as 182,472 ounces of gold.

Chilean state copper giant Corporacion Nacional del Cobre de Chile's tentative investment budget for 2007 totals $2.37 billion, according to a company spokesman.

The plan hinges on approval by the Finance Ministry, he added. The ministry is currently drafting the 2007 budget, while the budget of the state-owned companies is set in December of each year.

One of Codelco's top items is the Gaby project, for which Codelco plans to earmark $700 million in construction, the spokesman added.

Gaby, expected to come on line in early 2008, will cost $840 million in total, the spokesman said. That's moderately less than the $898 million the company previously estimated.

Last year, Codelco produced 1.83 million metric tons of copper, a 0.5% drop from the 1.84 million tons it produced the previous year.

Gaby is to produce 150,000 metric tons of copper a year for a 14-year period.

Peru's largest zinc company Volcan has closed a syndicated loan for US$120mn led by Credit Suisse to restructure existing credit agreements and for working capital, the company told the Lima stock exchange.

The loan will prepay outstanding obligations with a syndicate of banks led by West LB, a loan with West LB and a loan with Glencore International, according to risk agency Apoyo & Asociados, part of Fitch Ratings.

The new loan facility will have an interest rate of Libor plus 2.6% with three months grace and must be paid off over 5.3 years.

The restructured debt will allow Volcan to reduce their financial costs that totaled 58.7mn soles in 2005, said Apoyo & Asociados.

This has led Apoyo & Asociados to upgrade the rating for Volcan shares from 3a(pe) to 2a(pe), which also took into account recently improved financial results driven by higher metal prices and a brighter future thanks to a portfolio of mining investments.
Yauli projects

At the Yauli unit in central Peru's Junin department, Volcan shareholders have approved development of a small open pit at San Martin Sur and the expansion of its Victoria concentrator plant.

The San Martin project contemplates mining 952,000t of mineral with a grade of 3.25% zinc, 0.77% lead and 1.29oz/t silver, according to Volcan documents. The ore will be processed at Volcan's reopened Mahr Tunel concentrator.

At Victoria, Volcan plans to increase capacity from 2,400t/d to 3,000t/d in 2006 and to 4,000t/d in 2007 and, among other factors, takes into account renewed production from Yauli's mainly underground Ticlio operation.

The Yauli unit produced 194,718t of zinc concentrates and 31,469t of lead concentrates in 2005, up 6.02% and 11.5% respectively from 2004 thanks improved mining rates from the San Cristóbal mine and infrastructure improvements at the Andaychagua concentrator.
Cerro de Pasco unit

At the Cerro de Pasco unit in central Peru's Pasco department, Volcan shareholders have approved the development of a silver-copper oxide plant to process 4Mt of silver oxides with a grade of 7oz/t.

Cerro de Pasco churned out 257,322t of zinc concentrates and 82,562t of lead concentrates in 2005, slightly less than the previous year.

A source close to Volcan told BNamericas that the company should start seeing the fruits of these new projects from 2008.

One of the world's ten largest zinc companies, Volcan also operates the Chungar and Vinchos units. In 2005, the company produced a total of 543,265t of zinc, 2.5% higher than 2004, and 150,906t of lead, up 9.35% on the previous year.

Volcan also produced 4,403t of copper concentrates and 13.3Moz of silver last year.

As of December 31, 2005, Volcan had proven and probable reserves of 64.5Mt grading 6.37% zinc, 1.88% lead, 0.06% copper and 3.64oz/t (113g/t) silver, providing production until 2017, according to Apoyo & Associados.

Heavy liquidation across both base and precious metals sent London Metal Exchange three-month copper tumbling below key technical levels Thursday before prices retraced slightly.

LME three-month copper breached the 30-day moving average on its way down to a 10-day low of $7,300/ton mid-afternoon.

Selling pressure came from a combination of sources – a rebound in the dollar against the euro gave impetus to bearish moves, as did a sharp drop in aluminium prices.

But weakness signaled a buying opportunity for those funds with fresh fund allocations at the start of the month and bargain-hunting buying soon emerged, one analyst said. Buying off lows helped prices retrace to $7,700/ton at late kerb, up $200 on previous PM kerb.

Aluminium fell to a six-week low of $2,530/ton, responding to news U.S.-based aluminium producer Alcoa Inc. (AA) reaching a tentative labor contract agreement late Wednesday. Prices retraced to $2,610/ton at late kerb, up $20 on previous PM kerb levels.

Nickel fell to an intra-day low of $19,800/ton in line with copper's declines, though retraced to $20,550/ton by late kerb. Zinc finished the session $160 down on previous PM kerb prices at $3,500/ton.

3 months metal (prices in dollars a ton)
Bid – Ask, Change from Wednesday PM kerb

Copper 7700.00-7710.00, Dn 200.00
Lead 1038.00-1042.00, Dn 32.00
Zinc 3500.00-3505.00, Dn 160.00
Aluminium 2610.00-2615.00, Dn 40.00
Nickel 20550.00-20600.00, Dn 1,350.00
Tin 8185.00-8195.00, Dn 110.00

Gold futures closed above their worst levels Thursday, but still ended the session at a six-week low with traders using strength in the U.S. dollar as an excuse to continue to lock in recent gains

Gold for August delivery finished down $15.50 at $633.50 an ounce on the New York Mercantile Exchange – its weakest closing level since April 24. It fell as low as $625.70 early in the day, a level not seen since April 20.

On Wednesday, the contract closed out the month with a loss of almost $12, its first monthly loss since February when the front-month contract lost about 2% of its value. Contributing to the decline were comments from the head of Gold Fields, who said he expects the price to correct another $100 before resuming a rise past the former historic high of $850 an ounce.

"Lest anyone had remaining doubts that gold is (also) a two-way market, this morning's implosion in the price was probably enough to do away with such uncertainty," said Jon Nadler, investment products analyst at bullion dealers Kitco.com.

The combination of a temporarily weak dollar, a steep sell-off in the copper pits and fresh round of fund liquidations have gold starting to look "as if it really wants to complete a full 50% correction from last month's highs," he said. "Such a move could indeed bring it anywhere near $585 to $600 in coming sessions."

The dollar was strong early in the session, sending gold lower, before easing back a bit following a raft of economic data showing a mixed picture of the economy. The greenback was last trading at 112.70 yen, up 0.2% on the day but off an early high of 113.35. The euro stood at $1.2792, down 0.2% on the day but comfortably above its early low of $1.2719.

Other metals prices also recovered from their worst levels, with July copper closing down 15.3 cents at $3.471 a pound after earlier being suspended limit down and hitting a one-month low of $3.34 a pound.

Dale Doelling, said investment funds may be bailing out of copper, a move he described as premature.

"The fact that it's (ended) down just a bit says we just saw a tremendous buying opportunity that may not materialize again for quite some time," he said.

July silver closed down 55 cents at $11.905 an ounce, falling below the $12 an ounce level for the first time since May 22.

July platinum ended down $17 at $1,229.80 an ounce and June palladium lost $9.85 to close at $337.40.

Peter Grandich, editor of The Grandich Letter, said today's close below $635 "could suggest a test of the psychologically important $600, but the real long-term support is in the $575 area."

"The key in the coming days and weeks is to view this as a correction in a secular bull market – not the end."

On the supply side, gold inventories were unchanged at 7.79 million troy ounces as of late Wednesday, according to Nymex data. Silver supplies fell by 255,246 troy ounces to 108.8 million and copper supplies fell by 212 short tons to 9,544 short tons.

Bema Gold Corporation said Thursday it has signed a heads of agreement with AngloGold Ashanti, to form a New Company to jointly explore mineral opportunities within a 120,000 square kilometre area of northern Colombia.

The group said that under the HOA, Newco shall have the right to earn a 51% interest in any property which AGA chooses to farm out within the area of interest, by executing a minimum of 3000 metres of exploration drilling and matching prior AGA exploration expenditures.

It said that as part of the initial commitment, AGA has agreed to provide a minimum of eight exploration properties to the venture, and Bema will provide or arrange a minimum US$5 million in exploration funding.

Chairman, CEO, President Clive Johnson said: "The HOA gives AGA a one time right upon a 51% interest being earned in a project by Newco to participate at a 51% interest by deciding to become a contributing partner (Newco's interest would flip to a 49% interest); to participate at a 65% interest by funding completion of a feasibility study; and to participate at a 49% interest and dilute through an industry standard dilution formula. If AGA elects not to participate in a project, and Newco decides to joint venture the project, then Bema will have the first right to reach agreement on a joint venture."

"The HOA contemplates that within two years Newco will be listed on a recognized stock exchange at which time AGA will own 20% of Newco. It is intended that Bema will own approximately 20% of Newco. Bema and AGA are currently drafting a definitive agreement, the details of which shall be forthcoming," he said.

"Five projects have been selected to date for Newco. Field work consisting of geological mapping and sampling has commenced on two of these; La Mina and El Pino, located in the gold-rich province of Antioquia. La Mina is a gold-copper porphyry system, where intense stockworking in a potassically altered intrusive has been mapped over a 200 by 300 metre area. Channel sampling by AGA within this area included results containing up to 135 metres of 0.89 grams per tonne (g/t) gold and 0.21% copper. Outcrop exposure is limited in the system, but two additional exposures of potassically altered porphyry within a 1.5 kilometre radius indicate the potential for a large mineralized system. A diamond drill program consisting of 1500 metres in 6 holes to test subsurface grade continuity will commence in July."

"At El Pino, epithermal gold mineralization occurs within poorly exposed silicified breccias and metasediments over a six kilometre long structural trend. A 750 by 50 metre zone within this trend hosts consistently anomalous gold and silver values, up to a maximum of 43.5 g/t gold and 344 g/t silver in a 0.5 metre by 0.5 metre panel sample. Composite grab samples from three levels of an underground prospect in this zone average 4.6 g/t, 5.7 g/t and 6.4 g/t Au from breccia exposures at least 18 metres wide. Bema believes El Pino has the potential to host multi-gram gold plus silver mineralization over a significant area."

"Colombia's impressive gold endowment and high exploration potential is widely recognized, with historic production believed to exceed 120 million ounces. Recent government-led improvements in security, infrastructure, and mining law reform are providing an ever improving environment for foreign investment in mineral exploration and development. Bema is pleased to be entering Colombia through this joint venture with AGA and believes it fits well with our extensive history of early entry into high-potential, emerging exploration environments. AGA has been actively exploring in Colombia since 1999 and has a strong commitment to exploring and developing Colombian mineral resources in an environmentally and socially responsible way. This experience coupled with their exploration infrastructure will provide a distinct advantage to Bema and assure that the joint venture has access to top quality exploration opportunities, now and into the future," he said.