MUMBAI: Last week's meltdown in commodities, particularly in gold, reinforced the fact that the commodity markets are most vulnerable to currency movement.
And, as the financial crisis still persisting in some pockets of global economy, there could be some hiccups in the system that might hamper the recovery process. Currently, concerns over financial crises is pushing euro lower against the US dollar.
European member summit this week, would provide some insight into whether the will get financial aid or not. Till then, the commodity markets would remain volatile amid downward bias.
US crude oil futures fell more than half a percent to trade just above $80 a barrel, having slumped almost 2% in the previous session under the weight of a firmer US dollar.
NYMEX crude for April delivery, which expires at the end of the day, fell 47 cents to $80.21 a barrel, its third consecutive fall as the market again balked at breaking above $83.
This month, oil has managed to pierce $83 a barrel four times but has failed to hold the gains. In part, that inability stems from expectations of oversupply this year. Oil market is likely face oversupply of 150,000 barrels per day.
But last week, OPEC decided to keep oil production targets at current levels, maintaining production cuts in place since 2008. But the producer group is pumping well above its declared targets.
Gold declined further in early trading as investors sold into a stronger US dollar on financial uncertainties over being debt-laden. Spot gold was at $1,106.75 an ounce, marginally up from Friday's late price, which had dropped around 2% on the day.
US gold futures for April delivery on the COMEX division of the NYMEX stood at $1,106.70, same as previous session close.
Yuan could become a reserve currency accounting for at least 5% of global foreign-exchange reserves as early as 2025, central bankers said in an annual global survey. Japanese markets are closed for a national holiday.
Base metal counters are seen losing strength as the strength US dollar looks to cut metals investment appeal. Shanghai copper is seen trading lower, tracking a decline in London copper prices in the previous session.
Three-month copper on the London Metal Exchange (LME) fell $51 to close to $7,435 a tonne on Friday, but recovered to $7,445 in after-hour trading. LME copper last stood at $7,425 a tonne, down $25.
LME copper retreated on a stronger US dollar and mounting concern about debt crisis, while a 9% weekly jump in Shanghai's copper stocks added to worries about demand from the world's largest copper consumer.
Metals consumption in will continue to drive demand for years despite tightening credit according to Societe Generale.
On the supply side, Grupo said on Friday its copper mining subsidiary Southern Copper Corp had closed its copper smelter in San Luis Potosi, which had an annual capacity of 230,000 tonnes.
Copper scrap shipments to may fall in April as a new customs rule to fight duty evasion takes effect and demand falls as the government tries to cool a construction boom, industry sources said on Friday.
Domestic commodity counters extended losses on expected lines. Last Friday, the Reserve Bank of increased the repo rate, the rate at which it lends to banks, to 5.00% and the reverse repo rate, the rate which it absorbs funds from the system, to 3.50% with immediate effect.
Although the decision was on expected line but what surprised markets was the timing on announcement. The market was anticipating that RBI would announce rate increase in its April meet.
Meanwhile, the RBI decision helped prove dominance in gold markets. After the announcement, gold prices extended decline to 2% in international market.
This morning, too, gold moved in a submissive manner. Rupee’s strength also pressured bullion counter. MCX Gold for April settlement contract last quoted at Rs 16,475 per 10 grams after moving between Rs 16,513 and Rs 16,466 per 10 gram.
MCX Silver May settlement contract traded 0.5% lower at Rs 26,456 per kg, after having opened the session at Rs 27,540.
Crude oil counter continued to trended lower. MCX crude oil futures for April settlement moved between Rs 3,680 and Rs 3,664 before retracing to current level of Rs 3,667 per barrel.
Base metal counters extended fall tracking decline in the overseas markets. Weak cues from Shanghai have dampened trading sentiments on the metal counters.
MCX copper for April settlement was last quoting 0.5% lower at Rs 337.90 per kg, after opening the session at Rs 339.20. MCX zinc March contract lost nearly 1% to trade at Rs 102.75 per kg.
