Base metals decline, bullions rise on Fed's unchanged interest rate

'Weak global economy' comment holds the key, uncertainty persists

Copper snapped gains on Friday after a decision by the US Federal Reserve to keep interest rates unchanged. Copper declined by a marginal 0.7 per cent to $5352 a tonne on the London Metal Exchange (LME) following the Fed’s comment on the weak global economy.

Supply disruptions from the world’s leading mines, Codelco and Antofagasta, due to an earthquake in Chile on Thursday pushed copper to a two-month high. Both mines reported restoration of operations on Friday.

“The Fed took the view that the global economy is not doing well and, therefore, it did not raise interest rates. This is a signal that base metal demand will remain sluggish. Beyond that, however, the fundamentals remain unchanged. The disruption in mines in Chile was also normalised,” said Gnanasekar Thiagarajan, director, Commtrendz Research.

There was speculation earlier that the Fed would raise interest rates for the first time in many years on a recovery in the US economy. But the Fed’s decision to hold interest rates triggered partial profit booking in base metals on Friday.

Traders were nervous over demand for base metals from infrastructure and housing, the two largest consumer industries for copper. China’s slowdown has hit demand for base metals in housing and heavy industries. The world’s second largest economy after the US has proposed massive investments in solar and wind power, which could drive metal demand.

Among other base metals, zinc and nickel declined by 1.5 per cent and 1.7 per cent, respectively, on excess availability.

By contrast, gold jumped by $5.2 from the previous close to trade at $1,137 an ounce in London. Silver also moved in tandem to trade with a gain of $0.16 at $15.26 an ounce in early afternoon London trade.

In India, the gain in bullion was capped by a strengthening rupee. Following the Fed’s decision, the rupee gained its highest in two years to close at 65.67 against the dollar on Friday from 66.46 the previous day. Gold was quoted at Rs 26,540 per 10 gm in Zaveri Bazaar after opening at Rs 26,430.

“The long-term sentiment for bullion looks negative as the Fed cast a shadow on its future demand. But for the short term, a marginal improvement cannot be ruled out,” said Kumar Jain, director, Umedmal Tilokchand Zaveri.