CN: Spot gold, copper, oil prices fall on dollar strength
Spot Gold prices slumped almost 1.5% till 5.00 p.m. IST as strength in the dollar led to selling pressure in the yellow metal. The dollar could witness strength in the short-term on the back of expectations of a rise in interest rates in the coming year.
This could lead to downside in gold prices. Indication of a pullback in stimulus measures by the Fed in the coming year would be bearish for gold. We expect interest rates to rise in the US in the coming year.
Copper prices fell 1.3% on the LME till 5.00 p.m. IST as the dollar strengthened following a signal by the US Federal Reserve that it will begin withdrawing fiscal stimulus efforts as its economic recovery gains pace.
The Fed altered the timeline on some measures and said it would conclude its special liquidity facilities by February 1, 2010. Copper inventories on the LME continued to rise and gained 1300 tonnes today to touch 474575 tonnes. Copper prices could remain under pressure on the back of rising inventories, strong dollar and year-end profit booking by traders and funds.
Crude Oil prices declined 1%, taking cues from the stronger dollar and continuing concerns over demand. Strength in the dollar limited the appeal of commodities as a currency hedge. Prices could continue to remain under pressure as an estimate of oil consumption in China, the world’s second-largest energy user fell last month.
China’s demand for crude oil was 32.4 million metric tons in November, slipping from a record 33.4 million tons in October. Latest news also indicated that Japan’s second-largest refiner may close refineries and cut capacity because of global oversupply of oil products.
Outlook
The dollar could trade with a positive bias as optimism over economic recovery has raised the appeal of the dollar. Demand for the dollar ahead of the year-end is expected to rise as investors could move out of riskier investment assets ahead of a long holiday.
Gold and Copper prices could remain under pressure due to a stronger dollar. Rising inventories in the case of copper could cap the upside and prices could struggle around Rs330 levels on the MCX Feb contract. Crude oil prices could face downside pressure on the back of demand worries from China and strength in the dollar.
