Base metals prices are expected to swing wildly on lack of liquidity over the holidays, but traders and analysts believe that underneath they are deep and crisp and even. "The word you are looking for is volatility," Wictor Bielski, resources analyst at Macquarie Equities, told Reuters. "Thin markets, some sizeable profits available for taking and the prospect of tight markets in the first quarter of 2005, mean what we have seen in the last few days will be repeated in the next week and a half," he said.
Three month aluminium contracts rose to 9-1/2 year peaks last Thursday on the London Metal Exchange (LME) and copper had looked set to challenge near 16-year highs on Wednesday, before falling $100 as fund selling washed through. Zinc also rose to seven year highs.
In contrast, tin fell more than eight percent to below $8,000 a tonne on Friday as technical selling emerged when the metal went through the bottom of a nine-month trading range.
"Aluminium has been up on fund buying, but will that continue? Nobody really has a strong view," one LME trader said.
"People are trying to hold onto small longs, anticipating fund buying in the new year, but any buying will be well sold into," he said.
With the LME, the world's largest base metals trading arena, shut on December 27 and 28, base metals prices could move very quickly on COMEX in New York.
"There is a perception that markets could be volatile on Monday and Tuesday while the LME is shut and New York is open. The view is that without any European business, they will be able to move markets to extremes," a second trader said.
ALUMINIUM AND ZINC SEEN UP: Bielski said aluminium and zinc were most likely to move towards the upside.
"The goal for aluminium has been $1,900/2,000. Earlier this month there was talk of people buying $2,000 calls for February and if that is the target we could see people trying to ramp it up there over the holidays," he said.
"Zinc has sniffed the resistance around $1,250. These things rarely break through the first time, so I think it will have another go," the analyst said. "The interim target is $1,400, so I wouldn't be surprised to see that ramped up too."
Traders said that behind the violent price movements metals markets appeared to be building a base.
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