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In The Face Of A Global Commodity Meltdown

Author: Arpit Chandna/Wednesday, August 22, 2018/Categories: Commodities

In The Face Of A Global Commodity Meltdown

The global commodity market witnessed a huge selloff during the week ended August 17 on negative global cues.

In the heart of the matter was the crisis in the global currency market led by the free fall of the Turkish lira following sanctions imposed by the US on Turkey.

Precious and base metals were the worst hit. Comex gold prices plunged to a 19-month low to trade at $1262.70 per troy ounce, 13.86 per cent lower than the current year high of $1365.40 per troy ounce. Silver was down 16.72 per cent to $14.315 per troy ounce from the current year high of $17.53 per troy ounce. The strengthening dollar index and a surge in global equities dampened the demand for the yellow metal.

Meanwhile, the ongoing global trade dispute failed to bring relief to the bullion market. Further, the US Federal Reserve’s hint at increasing interest rates two times in the current year added to the bearish sentiment.

Fall in gold prices led to a decline in holdings in the SPDR Gold Trust to the lowest level of 773.41 tonnes as on August 17. However, the fall in the Indian market was limited and MCX gold prices fell to an 8-month low of Rs 29,268 per 10 grams as the rupee touched 70.39 against the US dollar.

Base metals rattled over the increasing trade tensions among the US and the global emerging economies. Slowdown in Chinese demand for industrial metals, as indicated by recent trade data from China, also kept the metal prices under pressure.

Once the Turkish lira fell, the dollar got boosted making dollar-priced metals more expensive for other currencies. All base metals steamed out and a massive selloff was witnessed in copper and zinc at LME as well as Shanghai Future Exchange.

LME zinc was the worst affected commodity, which fell 33.28 per cent to $2,392/MT from a high of $2,854/MT in the current year. This was followed by lead, which fell 23.91 per cent to $2,410/MT. Prices consolidated when Chinese officials announced that they would hold trade talks with the US this month.

Meanwhile, China has initiated efforts to stabilise its cooling economy by boosting the value of fixed-asset investment projects approved in July. In the near term, as global trade tensions ease, metals are expected to recover as the individual fundamentals will affect the prices.

The author is a Fundamental Analyst with Karvy Comtrade

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