The base metals were all sharply higher on Friday. Copper rose from the late pre-dawn hours straight through to afternoon, only just coming off its intraday high to finish at $1.4273/lb., up 14¼ cents from Tuesday.

Nickel staged a very strong upmove, building on Wednesday’s short session gains to close at its intraday high of $5.7417/lb., up $1.205. Zinc also just backed off its intraday high, ending at $0.5606/lb., up nearly 6 cents. Aluminum was nicely higher at $0.6937/lb., up more than 3 cents, while lead soared, adding nearly 8 cents, to $0.5048/lb.

Copper closed at a 3-week high on Friday, as investors chose to open the new year with a brightened outlook.

Or not. Many were downplaying the day’s action, and that of the last couple of days of 2008 as balancing acts. Typically, commodity index compilers recalculate the weightings for the individual commodities in their indexes at the turn of each year, and the volatility associated with that can be unconnected to any definitive market sentiment.

Jiang Mingjun, an analyst at Shanghai Oriental Futures Co., called it “window dressing,” and added that, “For at least the first quarter, we’re still going to see higher inventory levels and lower prices … Movements in the U.S. dollar will also continue to drive the entire commodities complex and hence copper prices.”

Stockpiles are certainly not suggesting any copper rally. Inventories monitored by the LME gained another 775 metric tons on Friday, to 340,550 tons, raising them to near a 5-year high.

But the metal got a little additional support from news that two key Chinese domestic smelters, Jiangxi Copper and Yunnan Copper, will lose production due to equipment malfunctions.

Meanwhile, nickel also benefited from speculation that index funds will buy more industrial metals this month during re-weightings in their benchmarks. Nickel has gained gained 36% in the past four trading sessions.

But Edward Meir, of MF Global (NYSE:MF) said recent gains “will likely recede over the course of next week when participants return from holiday and conclude that the macro landscape looks depressingly unchanged from where they left it.”

Source: Base Metals Sharply Higher