Commodities turn weak on sombre global news

Global commodities fell on Monday on the back of mounting worries over US and euro zone debt tensions. These escalating concerns led to a rise in risk aversion in global markets.

Copper fell near a one-month low as investors, already worried over Europe's crisis, digested news that the US plan to combat its debt was in disarray and took in warnings from China about possible global recession. Three-month copper on the benchmark London Metal Exchange fell to a day’s low of $7,340 a tonne, the lowest since late October, against the Friday close at $7,525.

According to Naveen Mathur, associate director of Angel Broking, “The boosted demand for the dollar, which appreciated around 0.5 per cent in on Monday’s trade, has come as a negative factor for dollar-denominated commodities.”

The rupee depreciated sharply by a little over 1.5 per cent and touched a low of 52.15 towards the end of the day’s trade. In the global commodities segment, spot gold prices declined around one per cent to touch an intra-day low of $1,704/oz. With the downside in base metals, silver also dropped sharply, by 3.5 per cent, and was at $31.13/oz in early afternoon trade. Additionally, the dollar strength was a negative factor.

Nymex crude oil prices declined 1.7 per cent on Monday, taking cues from rising global economic concerns which created demand fears. This and a stronger dollar added to downside pressure on prices. Crude oil was trading at $95.75/bbl, at a week’s low.

Bears dominated trading in the base metals pack. Weak sentiments in the global markets, coupled with a stronger dollar, exerted pressure on prices. However, depreciation in the rupee resisted further decline on the domestic bourses.

An analyst with Geojit Comtrade Ltd, a Mumbai-based broking firm, said election of a new government in Spain, expected to take drastic austerity measures, failed to appease investors. Crude oil extended the previous week’s losses on expectations that the US may have failed to reach an agreement to reduce its deficit. However, tensions over Iran’s nuclear program and other tensions in Egypt and Syria may provide a cushion to falling prices in the midst of an approaching winter season, he added.

Gold and silver prices are expected to trade lower. Risk aversion has gripped global financial markets on the back of global economic uncertainty and poor risk appetite could affect demand, said a report by Angel Broking.