Metals, gold correct after FOMC indicated rate hike in December
London (Oct 29) Commodity prices was on a correction mode after US Fed open market committee yesterday left interest unchanged but indicated that in the next meeting being held in December, rates will be hiked.
Yesterday the Fed indicated increase in rates in its next meeting being held in December. It removed a line from September's statement saying that global economic and financial developments "may restrain economic activity somewhat," saying Wednesday only that the central bank is monitoring the international situation. The committee also added a reference to the possibility of increasing the rate "at its next meeting" based on "realized and expected" progress in reaching goals.
An hour before the meeting decision came out crue oil was up 5-6% while gold has also touched $1180. However post meeting commodities corrected and today gold is trading around $1160 per ounce while base metals are down between 1-2%. Crude oil has seen only marginal fall.
Copper was trading at 0.8% lower to $5183 per tonnes, Aluminium was 0.6% down trading around $1474 per tonnes. Dollar index was at 97.5.
In India, on MCX futures copper was trading at 0.7% down to Rs.339 per kg, aluminium 0.42% down to R.94.15 while gold was down 0.9% to Rs.26,823 epr 10 gra and silver at 1.6% lower at Rs.37226 per kg.
ThiagaRajan Gnanasekar, Director CommTrendz, a commodity risk advisory firm said, "dollar index shop up after Fed announcement which led to correction in gold and silver. Even metals saw a correction on the back of strengthening dollar. After a year of talks, now it looks certain that US Fed will raise rates in December. If hiked, that will signal us economy in general doing well and hence there will be demand for commodities like metals which should provide support to base metals." He believed silver will outperform gold because industrial demand for silver will support it.
There are however views coming in that worst for base metals may have been over as US rate hike means its economy is doing well which will provide support to metals. "Initially base metals prices would remain in a narrow range and unlikely to fall much. However with strengthening US Dollar preious metals would face a challenge as there would be outflows from emerging markets and metals towards dollar assets" Gnanshekar said.
US Federal Reserve had been talking about increasing interest rates since almost a year after discontinuing bond buying program. Last September rate hike was looking almost certain but it had postponed it due to unstable global conditions especially in largest commodity buyer China which had seen a sharp fall in equities and had to devalue its currency.
Source: BusinessStandard
