MUMBAI: As the time for the European Union Central Bank (ECB) meet draws closer, the US dollar has started receding against the euro. Commodities have been following currency moves lately for lack of guidance from fundamental factors. A weaker US dollar causes rise in commodity prices as investors chase commodity futures to hedge against inflation.
A weaker US dollar also causes inflationary pressure as most commodities are dollar denominated.
Meanwhile, trading activity remained muted so far as China’s markets remain shut. Chinese markets are close an account of Lunar New Year while US markets are shut for observing President's Day.
However, markets would be keeping a close watch on China as its central bank surprised markets on Friday by raising banks' reserve requirements by 50 basis points, effective February 25. Reacting to the central bank’s decision most commodity counters went into a tailspin on Friday.
After Friday’s sell-off in commodity futures, the markets were expected to bounce back today. Apparently, most commodity counters maintained a steady trend. US crude futures continue to hover near $74 a barrel. NYMEX crude for March delivery edged 13 cents higher at $74.27 a barrel, after dropping $1.15 on Friday, when it tumbled to an intra-day low of $72.66.
US crude oil and gasoline inventories rose more than forecast last week while distillates fell much less than expected, showed weekly government data on Friday which analysts said reflected lingering weak demand for refined fuels in the world's largest energy consumer.
Gold prices scaled above $1,100 per ounce level as a softer US dollar raised gold’s investment appeal. Investors continue to watch the currency markets for a direction. Spot gold added nearly 1% to $1,098.35 an ounce, compared with New York's notional close of $1,092.40. Earlier in the day, spot gold rose to a session high of $1,102.15 an ounce, the highest since February 4, as investors turned to the metal as a hedge against currency volatility.
US gold futures for April delivery were up 1.1% at $1,101.80 an ounce. US markets are closed on Monday for Presidents Day. Chinese markets are closed for the Chinese New Year holiday.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust said its holdings held steady at 1,106.38 tonne on Friday.
Base metal counters are expected to move in a narrow range for lack of guidance from the Chinese markets. Shanghai markets are closed on account of Chinese new-year. Currency moves and scheduled economic data out of Euro region could provide some lead for metal price movement.
Copper prices fell Friday under the weight of a stronger US dollar, mixed economic data in the and further monetary tightening moves in , which triggered renewed worries about near-term demand prospects in the world's top metals consumer.
On the London Metal Exchange (LME), copper for three-month delivery ended at $6,810 a tonne, down $130 from Thursday, off two-week high. The contract was last quoting at $6,866, up $66.
On the supply side, LME copper stocks at one-year highs above 547,000 tonne weighed on prices, but against that, canceled warrants - material earmarked for delivery - doubled to above 12,000 tonne on Thursday from Wednesday.
Domestic commodity markets reversed most of the early declining trend falling in line with the global markets. Also, the rupee paring some of its gains helped domestic commodity futures to move higher. On MCX, crude oil contract for near-month settlement was last quoting almost flat at Rs 3,442 a barrel, not far from early highs of Rs 3,448. The contract had opened the session at Rs 3,440.
MCX Gold for April settlement contract pared entire losses to bounce back into positive zone helped by rupee’s depreciation against the US dollar. After a early set-back which saw the contract following to Rs 16,473 per 10 gram, its has now recovered to trade at Rs 16,570 per 10 grams. MCX Silver March settlement contract traded 0.1% higher at Rs 24,484 per kg, after having opened the session at Rs 24,485.
Base metal counters have also moved into a positive zone tracking LME. MCX copper for February settlement traded 0.6% higher at Rs 316.65 per kg. MCX zinc February contract regained Rs 100 a kg mark and went ahead to trade at Rs 101.25 a kg, up 0.9%. The contract had resumed today’s session at Rs 100.40.
