COM: Gold, copper, crude oil slide on dollar strength
Spot Gold prices declined almost 1% till 4.00 pm IST as strength in the dollar made the yellow metal look unattractive for holders of other currencies. The US dollar gained ahead of the economic data announcements from the US today. Investors are risk averse and any sign of poor economic data could lead to higher demand for the low-yielding dollar. Gold prices could remain under pressure if the strength in the dollar continues to remain.
Copper prices declined more than 1% on the LME and MCX till 4.00 pm IST as strength in the dollar coupled with concerns over expected economic data announcements pushed prices lower. Inventories of copper on the LME declined 100 tonnes but prices did not react to this decline in inventories as signs of further monetary policy tightening in China prompted further pullbacks. Chinese banks have been instructed to stop lending for the rest of January. China is the driver of base metals demand and this crunch in liquidity is bearish for base metals.
Crude Oil prices slipped in today’s trade ahead of the API report which is expected to show that crude oil inventories climbed for a third week. Strength in the dollar also curbed demand for the commodity. Prices also came under pressure on concern that China the second-biggest consumer of oil may step up efforts to curb credit growth. This led to concern that lower credit availability could dampen energy demand.
Outlook
The US is expected to announce economic data on building permits, housing starts, PPI and Core PPI today. Positive economic data could raise risk appetite in the financial markets. But strength in the dollar could cap sharp gains in gold. Crude oil prices could trade with a negative bias as inventories are expected to rise and indicate that the demand scenario still remains bleak.
Copper prices may also face downside pressure as China is limiting credit facilities and this is a major concern as China is the driver of base metals demand. Gold prices will take cues from the movement in the dollar. If the dollar continues to strengthen then gold prices could come under pressure.
