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Copper Rallies, But Is Rally Doomed to Falter?

November 29, 2011 at 0:38 by Vladimir Vyun

Copper advanced as the sentiment about the situation in the European Union improved, boosting prospects for raw materials. Analysts are worried, though, that the optimism may be short-lived.

There’s the speculation that the International Monetary Fund prepared a loan to Italy. The officials denied the rumors, but traders felt their mood improving. In general, Monday was a day of “risk-on mode” and most of commodities rallied.

Unfortunately for traders, there are many reasons for the rally to be short-lived. Moody’s Investor Service warned that the indecisiveness of the European leaders may lead downgrades for the credit rating of the European countries. The rating agency wrote:

The continued rapid escalation of the euro area sovereign and banking credit crisis is threatening the credit standing of all European sovereigns, cautions Moody’s Investors Service in a new Special Comment. In the absence of policy measures that stabilise market conditions over the short term, or those conditions stabilising for any other reason, credit risk will continue to rise.

Futures for delivery of copper in March rose as much as 2.7 percent to $3.3715 per pound by 13:14 on COMEX.

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