Commodities Go Back Into The Ground

Last week there were rumours of the possibility of Cyprus selling some gold from its Central Bank reserves. Plus, the country was in news on speculation of its government asking for more bailout funds. At the same time, there was a batch of weak economic data from the US. Combined, these factors triggered a sell-off in commodities, causing a heavy downfall, especially in gold. Add to this the Goldman Sachs’ downward revision of its gold prices forecast to USD 1545 an ounce, down from a prior forecast of USD 1610 and the markets saw panic. On Friday, gold lost USD 63.50 or 4.1%, to USD 1501.40 an ounce, in the most active contract on the Comex division of the New York Mercantile Exchange. This marks a 20% drop since the record settlement reached in August 2011.

Wait, that’s not the end. On Monday, gold for June delivery tumbled USD 140.30, or 9.3% to USD 1361.10 an ounce. In rupees, on Indian markets, gold prices dropped to Rs 26450/10 grammes on the spot market. Along with gold, silver too saw a steep slide with prices dropping by 11% in one day. Adding to yesterday’s fall were China’s disappointing quarterly growth and monthly industrial production figures.

Overall, the commodity mayhem led to big losses on equity markets. In the US, the Dow, Nasdaq and S&P lost 1.79%, 2.40% and 2.32% respectively. In Europe, the FTSE, DAX and CAC ended the day lower by 0.63%, 0.41% and 0.52% respectively. Why did the Sensex and Nifty gain 0.63% and 0.72% respectively then?

WPI (Wholesale Price Index) figures were announced yesterday. WPI inflation for March 2013 came in at 5.96% as against 6.84% in February 2013. This gave the markets a big breather due to the anticipation of another rate cut to boost growth.

However, this rise is expected to give away today and the markets are expected to see a negative opening on account of the global commodity scare. Asian stocks have opened negative with the Nikkei, Hang Seng and Shanghai trading lower by 0.86%, 0.84% and 0.32% respectively. The SGX Nifty too is trading lower by 40 points. A negative opening is on the cards for the day.