Bullion shines, other commodities subside

Domestic fundamentals unchanged, but US fright impels investors to pull back in all other markets.

Gold climbed to hit a new record on Monday, as investors booked the commodity as a safe-haven investment at a time of global economic crisis. In contrast, base metals and agri commodities fell, as investors pulled back from these sectors to offset loss in other avenues.

Spot gold in London jumped to a record at $1,715.75 an oz in early morning trade but profit booking pulled the precious metal down to trade at $1706.47, a rise of 2.6 per cent from Friday’s close at $1,663.80 an oz. Silver remained relatively calm, to trade at $39.80 an oz from $38.35 an oz the previous day.

“The widespread selloff seen in the equity markets has benefited gold, pushing it to record highs. Except for bullion (gold and silver), practically all other commodity classes — crude oil, industrial metals, vegetable oils, spices to grains — have seen a fall, with a decline in demand outlook and worries of an increase in economic uncertainties in the aftermath of the US credit rating downgrade and ongoing concerns over euro zone economies. Investors are likely to continue to seek out risk-averse assets,” said Naveen Mathur, associate director (commodities & currencies), at Angel Broking.

Goldman Sachs has raised its gold price forecasts, citing the fall in US real rates and intensifying sovereign debt issues in both America and Europe. With the current revision, the three-month gold price forecast has been raised to $1,645 an oz from $1,565 an oz earlier, said the investment bank. It also raised its six-month and 12-month forecasts to $1,730 an oz and $1,860 an oz, respectively.

Led by zinc, followed by tin, base metals recorded a sharp decline due to the perceived trouble in the US economy, the world’s second largest user of these commodities after China. After Standard & Poor’s downgrade, frightened investors booked profit from base metals, amid apprehension that the sector may see a further dip due to the lack of bulk investments from hedge funds.

Zinc prices fell 4.95 per cent to settle on Monday at $2,148 a tonne. Other industrial metals like nickel and tin fell three to four cent from their respective close on Fridays. Copper and aluminium, however, held strong, with investors optimistic about these.

Following the trend, agri commodities fell between one and two per cent. Madan Sabanavis, chief economist at Care Ratings, attributed this to knee-jerk reactions of the development in global economies.

Prices of globally referenceable agri commodities fell — cotton by 1.4 per cent, soybean, sugar and other refined soya oil by nearly one per cent.

“With the US economy ratings downgrade, the global trade in agri commodities is likely to remain low, along with poor global demand. The current price decline is primarily driven by a common pullback by investors from all other markets. Domestic fundamentals remain unchanged,” said Sabnavis.

Sugar futures on the NCDEX fell 0.9 per cent to close at Rs 2,613 per quintal, following a similar trend in COMEX, where the sweetener for near-month delivery fell four per cent to 26.99 cents a pound.