Global commodities plunge on Goldman probe impact

Global commodities plunged today to multi-week lows due to fraud charges against Goldman Sachs, Wall Street’s most influential bank, by the US Securities and Exchange Commission (USEC).

Spot gold fell to hit the lowest in two weeks to quote at $1,123.15 an ounce (oz) in early European trade. Similarly, copper plunged to hit three-weeks low at $7,625 a tonne before markets officially opened.

USEC on Friday charged the embattled Wall Street firm Goldman Sachs with fraud over its marketing of a subprime mortgage product, sparking an immediate slide in high-risk assets including commodities. Goldman Sachs is now facing an investigation by the watchdog, the Financial Services Authority, following the $1billion (£650 million) fraud allegations brought by the US regulators.

Other metals including aluminium, nickel, lead and zinc also fell dramatically over concerns about the fraud which pushed the global financial markets into profit booking mode.

The fall was partly attributed to the currency affects which weighed on commodities as the dollar strengthened broadly. Strength in the US unit curbs metal’s appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.

Especially, risk aversion weighed higher yielding currencies including the euro because of lingering concerns over Greece’s debt levels.

According to an India Infoline commodity report, China last week raised mortgage rates and down payment requirements to control speculative property buying, a move seen slowing construction investment and consequently the demand from base metals. Aluminum fell more than 2 per cent. Other base metals also followed suit.

Goldman Sachs development is just a reason for market to correct from overheating. Whatever correction was to happen has happened. Now, market has already started discounting Goldman Sachs news,” said Kishore Narne, head of research, Anand Rathi.

“There is no possibility of further downfall in prices,” he added.

In an unprecedented move, China last week raised mortgage rates and downpayment requirements to control speculative property buying, a move seen slowing construction investment and consequently demand from base metals.

The effort was seen as China’s attempt to rein in speculation in its red-hot property market.

Until more adverse comes in Goldman Sachs issue, no further price damage will happen. Commodity markets have already discounted the Friday’s development and further downfall in commodity prices is unlikely, said Naveen Mathur, associate director (commodities and currencies) of Angel Broking.

However, investors will continue to move towards non-risky assets like dollar and gold, he added.

The most tradable currency dollar moved to 1.3462 against euro in early evening european trade after opening at 1.3433 early Monday. The US currency strengthened against the rupee to close the day at 44.73 after opening at 44.57.