 "Industrial commodities decline on US rate cut")
Industrial commodities, including base metals and energy, declined on Thursday on a strengthening dollar, following the 25 basis points (bps) interest rate increase by the Federal Reserve, the US central bank, on Wednesday.
On the benchmark London Metal Exchange, copper for three-month delivery slipped a marginal 0.2 per cent in opening trade to $4,601 a tonne. Other metals followed. The fall in metal prices was also seen here on the Multi Commodity Exchange (MCX), though the rupee closed with a gain, at a three-week high of 66.42 against the dollar on Thursday, as compared to 66.73 on Wednesday. Copper on the MCX declined 1.2 per cent to Rs 318 a kg in early Thursday trade.
A positive indication of US economic growth is likely to strengthen the dollar against other major currencies. However it would keep other asset classes, including bullion and base metals, under pressure in the short term. But, in the long term, a rebound in base metals and bullion cannot be ruled out. The Fed's move ends the seven-year zero interest rate regime in the US. This might encourage more investors to pull out money from other asset classes, to invest in the US treasury.
“Base metals could weaken a bit more, as the trend looks bearish as a result of the Fed rate hike. More than the current one, the Fed’s indication for four subsequent hikes in 2016 is worrying investors. But, from the trend, it looks like base metals are hovering near (their) bottom, as the production cuts announced by major producers might raise supply-side concerns. Therefore, base metals would get some support in the long term, say, by June 2016,” said Gnanasekar Thiagarajan, Director, Commtrendz Research.
Industrial commodities have declined 25-30 per cent so far this calendar year, on a slowing in global economies. By raising interest rates, the US central bank has bolstered the value of the dollar, the currency used around the world to buy and sell most raw materials. Even with global surpluses and slowing economies keeping prices lower for everything from crude oil to wheat, demand might weaken, especially from major importers in Asia like China and India that have been key drivers of commodity buying.
The Fed increase pulled gold marginally lower by $4 a ounce on Thursday, to $1,068 in London, translating to a 0.9 per cent decline on the MCX. The gold contract for near-month delivery was quoted at Rs 25,236 per 10g in late afternoon trade. Prices declined on Thursday to give back some of its overnight gains, with trading choppy. In the spot market, standard gold declined by Rs 140 for 10 g, to trade at Rs 25,460 per 10g.
Spot silver prices were down one per cent at $14.10 an ounce, while MCX silver prices declined by 1.1 per cent to close at Rs 34,030 a kg. Falling base metals and a strengthening dollar index by around 0.9 per cent were a negative factor.
WTI oil prices were down one per cent on Thursday to $35.18 a barrel, while MCX oil prices were lower by 1.7 per cent at Rs 2,346 a barrel. Prices declined to an 11-year low on Thursday, dented further by seemingly relentless oversupply, coupled with a stronger dollar after the Fed move.
A CLSA report said the current bear cycle might last for long. In global markets, gold has fallen 40 per cent in the five years and silver by 70 per cent in the same period. The Bloomberg commodity index is around a 13-year low.
On the benchmark London Metal Exchange, copper for three-month delivery slipped a marginal 0.2 per cent in opening trade to $4,601 a tonne. Other metals followed. The fall in metal prices was also seen here on the Multi Commodity Exchange (MCX), though the rupee closed with a gain, at a three-week high of 66.42 against the dollar on Thursday, as compared to 66.73 on Wednesday. Copper on the MCX declined 1.2 per cent to Rs 318 a kg in early Thursday trade.
A positive indication of US economic growth is likely to strengthen the dollar against other major currencies. However it would keep other asset classes, including bullion and base metals, under pressure in the short term. But, in the long term, a rebound in base metals and bullion cannot be ruled out. The Fed's move ends the seven-year zero interest rate regime in the US. This might encourage more investors to pull out money from other asset classes, to invest in the US treasury.
“Base metals could weaken a bit more, as the trend looks bearish as a result of the Fed rate hike. More than the current one, the Fed’s indication for four subsequent hikes in 2016 is worrying investors. But, from the trend, it looks like base metals are hovering near (their) bottom, as the production cuts announced by major producers might raise supply-side concerns. Therefore, base metals would get some support in the long term, say, by June 2016,” said Gnanasekar Thiagarajan, Director, Commtrendz Research.
Industrial commodities have declined 25-30 per cent so far this calendar year, on a slowing in global economies. By raising interest rates, the US central bank has bolstered the value of the dollar, the currency used around the world to buy and sell most raw materials. Even with global surpluses and slowing economies keeping prices lower for everything from crude oil to wheat, demand might weaken, especially from major importers in Asia like China and India that have been key drivers of commodity buying.
The Fed increase pulled gold marginally lower by $4 a ounce on Thursday, to $1,068 in London, translating to a 0.9 per cent decline on the MCX. The gold contract for near-month delivery was quoted at Rs 25,236 per 10g in late afternoon trade. Prices declined on Thursday to give back some of its overnight gains, with trading choppy. In the spot market, standard gold declined by Rs 140 for 10 g, to trade at Rs 25,460 per 10g.
Spot silver prices were down one per cent at $14.10 an ounce, while MCX silver prices declined by 1.1 per cent to close at Rs 34,030 a kg. Falling base metals and a strengthening dollar index by around 0.9 per cent were a negative factor.
WTI oil prices were down one per cent on Thursday to $35.18 a barrel, while MCX oil prices were lower by 1.7 per cent at Rs 2,346 a barrel. Prices declined to an 11-year low on Thursday, dented further by seemingly relentless oversupply, coupled with a stronger dollar after the Fed move.
A CLSA report said the current bear cycle might last for long. In global markets, gold has fallen 40 per cent in the five years and silver by 70 per cent in the same period. The Bloomberg commodity index is around a 13-year low.