Commodities fall as rising Covid-19 cases spark fear of lockdown

Commodity prices fell on Tuesday as rising Covid-19 cases around the world sparked fears of a fresh round of lockdowns and the US and China sparred over Beijing’s territorial rights in the South China Sea.

Gold, silver, oil, and copper were among the major losers globally and in India — on the MCX. The fall was partly arrested after the rupee tumbled against the dollar, making the import of these commodities costlier.

On MCX, crude oil and silver were down 1.7 per cent from Monday night’s close, while gold shed 0.6 per cent. In metals, zinc and lead lost the most.  

Market experts, however, attributed the fall to profit booking.

Gnanasekar Thiagarajan, director at Commtrendz Risk Management Services, said: “The fall can be attributed to profit booking and some risk aversion on the back of US-China tensions.”

Despite a good price recovery in crude oil over the past one month after Opec extended the output cut in June, traders fear any partial or full lockdown will further hamper economic recovery and hit demand for oil.

 

Globally, oil slipped around 2 per cent, but the fall was lower on MCX.

Gnanasekar said: “Rising virus cases, geopolitical tensions, low interest rates and an uncertainty about the US elections are all key factors providing a solid foundation for gold and silver prices to rise going forward. However, it may not be the same for metals and energy, which have been rallying purely on the back of supply problems. Still, demand is nowhere near pre-Covid levels and therefore the recent rally has the potential to fizzle out.”

California, one of the largest gasoline-consuming states in America, announced on Monday that it would pull back on reopening efforts, the latest red flag for the return of oil demand. Hong Kong imposed its strictest social-distancing measures yet and Japan said a new state of emergency is possible if infections increase.

Crude’s drop was part of a broader downward move in markets, as the economic hit of rising virus cases continues to grow.

Broader sentiment was dull after the United States rejected China’s disputed claims in most of the South China Sea, with US Secretary of State Mike Pompeo saying Beijing’s claims were “completely unlawful”.

“The physical premium in China has risen this week, suggesting this is a short-term correction as demand remains firm and the concerns about disruption in Chile are real,” said commodities broker Anna Stablum of Marex Spectron.