Metals, gold fall after Fed indicates rate hike in Dec

US Federal Reserve had been talking about increasing interest rates since almost a year

Commodity prices fell after the US Federal Reserve’s open market committee decided on Wednesday to not change its key policy rate but indicated that this might be raised at the next meeting, due in December.

The Fed panel, after saying the central bank was monitoring the international situation, added a reference to the possibility of increasing the rate in the next meeting, based on “realised and expected” progress in reaching its stated goals.

An hour before the meeting’s decision came out, crude oil was up by about five per cent and gold’s price had touched $1,180 an ounce. However, after the meeting, commodity prices fell and gold was trading on Thursday around $1,160 an oz, while base metals were down by one to two per cent. Crude oil had a marginal fall.

Copper was trading 0.8 per cent lower at $5,183 a tonne and aluminium was 0.6 per cent down at $1,474 a tonne. The dollar index was at 97.5.

In India, on the Multi Commodity Exchange, copper on the futures exchange was trading 0.7 per cent down at Rs 339 a kg, aluminium 0.4 per cent down at Rs 94.15 a kg, gold was down 0.9 per cent to Rs 26,823 for 10g and silver 1.6 per cent lower at Rs 37,226 a kg.

Thiagarajan Gnanasekar, Director of CommTrendz, a commodity risk advisory agency, said: “The dollar index shot up after the Fed announcement, which led to a correction in gold and silver. Even metals saw a correction, on the back of a strengthening dollar. After a year of talk, it now looks certain that the Fed will raise rates in December. If raised, that will signal us that the economy in general is doing well and, hence, there will be demand for commodities like metals.”

He believed silver would outperform gold because of industrial demand.

“Initially, base metal prices would remain in a narrow range and are unlikely to fall much. However, with a strengthening dollar, preious metals would face a challenge, as there would be outflows from emerging markets and metals towards dollar assets,” he added.

The Fed has been talking about raising rates for almost a year, after discontinuing its long bond-buying programme. Last September, a rate rise seemed likely but was postponed because of unstable global conditions, especially in the largest commodity buyer, China, which had seen a sharp fall in equities and had to devalue its currency.