Gold, silver, crude prices plunge as trading catches coronavirus bug

Gold, silver and crude oil prices hit the lower circuits on India's MCX index on Monday, pulled down by the coronavirus crisis that caused a global equity sell off in bullion, metals and energy.

Silver traded at its lowest in international markets since May 2009 and crude oil, metals did their worse since 2016.

Agricultural commodities declined sharply as sellers rushed to liquidate their stocks. Gold was in the green initially but fell in late trading. “Funds and investment houses had bought a huge quantity of silver in the last few months as safe haven asset class. Now, they are coming in to liquidate to convert the metal in to cash which led to a sharp decline in silver prices globally. The same trend percolated to India as well,” said Gnanasekar Thiagarajan, Director, Commtrendz.

Silver slumped to trade below $12 an oz in the international market, but traders in Mumbai spot market were still reluctant to sell.

As per existing guidelines, trading in many commodities were halted after hitting the lower circuits and restarted only after the cooling period.

On the benchmark MCX, silver for delivery in May 2020 prices declined by nearly 16 per cent to trade at Rs. 34,139 a kg. Similarly, gold contract for delivery in April fell by 4.18 per cent to Rs. 38683 per 10 grams. Crude oil and copper slumped by 9 per cent and 3.85 per cent to trade at Rs 2179 a barrel and Rs 405 a kg respectively.

Source: Bloomberg; Compiled by BS Research Bureau

Among agri commodities, castor seed contract for delivery in March plunged by 3.91 per cent to trade at Rs 3680 a quintal on the National Commodity and Derivatives Exchange (NCDEX).

“Commodities including bullion, energy, metals and agriculture are facing global selling pressure emerged to pay margins (mark-to-market or MTM) loss in equity markets. Global equity markets have posted a massive sell off on a devastating impact on global economy due to sealing of trades to quarantine spread of coronavirus (Covid – 19),” said Kishore Narne, Associate Director, Motilal Oswal Financial Services Ltd.

Global commodities including gold and silver opened high in early trade on Monday following the US Fed’s decision to cut interest rate to nearly “zero” to help the economy withstand the impact of the Covid -19 pandemic. The ‘1’ per cent decline brought the effective interest to 0-0.25 per cent now. Analysts estimate the rate cut to the generate $700 billion revenue for the US economy.

“Within a couple of hours of trade, however, the gain got nullified in a widespread selling across all asset classes. Now, traders have gone beyond margin pressure to generate some cash to buy tissue paper, medicine and food and store them for survival in the Covid-19 spread,” said Thiagarajan.

On the benchmark London Metal Exchange (LME), leading base metals declined by 4-5 per cent on huge selling pressure. With fundamentals remained unfavourable, copper and zinc, considered to be small investment options in the commodity asset class, posted a decline.

The decline in crude oil prices steepened with Saudi Arabia increased its output to fight oversupply from Russia which led to a price war between the two major producers.

 “Oil prices have come under intense pressure on both demand and supply sides, worries about the pandemic slashing oil buying persist, while oversupply fears have grown after top exporter Saudi Arabia ramped up output and slashed prices to increase sales to consumers in Asia and Europe. One should look for sell on rallies,” said Karan Shah, Analyst (commodity and currency), Indiabulls Securities Ltd.