Eurozone hopes drive commodity gains

Commodities gained on Friday, pushing gold and crude oil into weekly gains, as investors clung to hope that the European debt crisis could be contained after Italy prepared to vote for spending cuts.

The Italian senate is likely to approve a series of austerity measures designed to avoid the eurozone's third-largest economy requiring a bailout, while in Greece former European Central Bank vice-president Lucas Papademos was named as the country's new interim prime minister, following a scramble to avoid a Greek default.

The measures taken across the struggling nations to contain their debt crisis sent oil prices rallying to a three-month high as fears for a demand slump subsided.

A barrel of the black stuff fetched as much as $98.53 (£61.67) – its highest intraday price since 1 August – and left it headed for the longest run of weekly gains since April 2009.

As well as hopes that the spreading debt crisis can be contained, better-than-expected jobs data and export data across the pond helped to cheer investors.

Gold also climbed on Friday, ending a three-day losing streak for the precious metal. It was headed for a third week of gains, its longest winning stretch in more than two months.

Carsten Fritsch, analyst at Commerzbank, said: 'The focus of market players is likely to be on the forthcoming votes on austerity measures in the Italian Senate and parliament.

'Although the planned reforms are unlikely to be blocked, it is still unclear whether a new government in Italy will be able to successfully consolidate its budget without external help. Gold should therefore continue to profit from the persisting high uncertainty.'

Flying the flag for the base metals, three-month copper on the London Metal Exchange crawled 1 per cent higher to $7,550 (£4,725) a tonne, after having fallen to a two-week low previously.

The rise in copper prices follows Chinese data released on Thursday which revealed that the recovery in the country's commodity imports continued to gather pace in October.

Copper imports proved the strongest last month, but given that Chinese copper imports are inversely correlated with the price, and bearing in mind that copper has suffered a 24 per cent decline in price since September, it is unsurprising that imports were strong.

Overall, imports of industrial commodities, which had proved somewhat of a drag on total commodity imports earlier this year, were up by over 7 per cent year-on-year.

But Julien Jessop, chief global economist at Capital Economics, believes markets shouldn't get too overexcited by the numbers: 'We remain of the view that this is mainly due to importers restocking, encouraged by lower prices, rather than any significant improvement in final demand.'

This was written for our sister website, Interactive Investor

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