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Gold slumps to four-year low as Fed calls time on QE

Gold tumbled this week to a four-year low and many other commodities also faltered, as the dollar rebounded after the Federal Reserve ended its quantitative easing stimulus.

business Updated: Nov 01, 2014 10:28 IST


Gold tumbled this week to a four-year low and many other commodities also faltered, as the dollar rebounded after the Federal Reserve ended its quantitative easing stimulus.

The euro dived below $1.25 for the first time for more than two years, driven also by speculation that the US central bank could raise borrowing costs sooner than expected.

The European single currency slid on Friday to $1.2486, its lowest level since August 2012.

The stronger greenback makes dollar-priced raw materials more expensive for buyers using weaker currencies, which tends to dent demand and prices.

Precious metals: Gold dived on Friday to $1,161.16 per ounce, the lowest point since late July 2010. Gold has fallen sharply since the Fed said Wednesday that it will end its QE policy, after six years of pumping easy money into the US economy via asset purchases to shore up growth. Official data showed Thursday that the US economy grew at an annualised 3.5% in July-September.

That beat expectations for a 3.0% rise. The reading, coupled with upbeat comments about the jobs market from the Fed, stoked speculation that it could hike interest rates earlier than its timetabled mid-2015 date. "The gold market again reacted negatively to the prospect of rate hikes, highlighting how sensitive the market has again become to tighter monetary policy," said Barclays analyst Suki Cooper.

"We continue to believe the prospect of firmer (interest) rates, coupled with our expectation for a stronger dollar, present significant headwinds for gold." Sister metal silver slid to $15.76 per ounce, a nadir last witnessed in February 2010. In contrast to the Fed, the Bank of Japan ramped up its vast monetary easing programme on Friday, in a shock move aimed at reviving growth.

"The BoJ's surprise announcement ... provided the stock markets and the US dollar an extra push which reduced the appetite for safe haven gold even more," noted analyst Fawad Razaqzada.

By late Friday on the London Bullion Market, the price of gold tanked to $1,164.25 an ounce from $1,232.75 a week earlier.

Silver declined to $16.20 an ounce from $17.19.

On the London Platinum and Palladium Market, platinum weakened to $1,227 an ounce from $1,254.

Palladium was unchanged at $784 an ounce.

Crude oil slides

OIL: Prices slid on heightened expectations of rising US borrowing costs, and on stubborn concern over plentiful crude supplies.

Singapore's United Overseas Bank said oil faced downward pressure "as expectations that US interest rates may rise sooner than previously thought" pushed the dollar higher.

Commerzbank analysts added: "Apart from a firmer US dollar, a more than ample supply is continuing to weigh on oil prices."

New York crude had fallen to two-year lows and Brent to its lowest levels in four years in October, pressured by oversupply and weak demand from slowing world economies.

OPEC secretary-general Abdullah El-Badri declared Wednesday that market conditions did not justify recent sharp falls for crude futures and signalled the cartel would maintain output through next year.

Addressing the Oil & Money Conference -- a key annual event in the energy sector calendar -- El-Badri said that rising supplies did not justify the extent to which prices have dropped in recent months.

"We don't see that much of a change in the fundamentals," El-Badri said in London.

"Demand is still growing, supply is also growing. The magnitude of the increase in the supply does not really reflect this 25 percent change in the market."

Crude futures have slumped by about one quarter in value since the middle of June, with New York contracts hitting two-year lows, largely owing to a supply glut in the United States.

Demand is meanwhile downbeat in Europe against a backdrop of weak growth in the eurozone.

The 12-nation Organization of Petroleum Exporting Countries will decide on output levels at a meeting in Vienna on November 27, amid anxiety over lower oil prices that have slashed the cartel's revenues.

By Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in December slid to $85.36 a barrel from $86.03 one week earlier.

On the New York Mercantile Exchange, West Texas Intermediate or light sweet crude for December recoiled to $80.18 a barrel compared with $81.38 a week earlier.

Base metals: Base or industrial metal prices mostly rose, boosted by the Bank of Japan's surprise stimulus boost and upbeat Chinese data.

The BoJ announced on Friday it would add up to 20 trillion yen ($182 billion) to its current asset-buying scheme, bringing it to 80 trillion yen annually.

"Nickel and aluminium received a filip from the unexpected monetary stimulus boost from Japan and adding to this a small rise in Chinese manufacturing PMI, the near-term outlook for the sector improved," said Saxo Bank analyst Ole Hansen.

By Friday on the London Metal Exchange, copper for delivery in three months eased to $6,720 a tonne from $6,724 a week earlier.

Three-month aluminium rose to $2,031.50 a tonne from $1,971.

Three-month lead inched down to $2,014 a tonne from $2,015.

Three-month tin advanced to $19,955 a tonne from $19,427.

Three-month nickel rose to $15,768 a tonne from $15,174.

Three-month zinc increased to $2,313 a tonne from $2,265.25.

Cocoa: Prices hit five-month lows on ample supplies, easing as the Ebola outbreak showed no signs of spreading to key cocoa producers in west Africa.

"It would appear that Ebola is no longer seen as posing such a threat to the West African producer countries of Ivory Coast and Ghana," Commerzbank analysts said.

"So far, there have not been any disruptions to supply. Together, the two countries account for 60 percent of the worldwide cocoa supply.

"Discounting the risk premium for Ebola, there is nothing to see but an amply supplied market."

The cocoa market had soared in September to 3.5-year peaks on worries that Ebola could hit output in Ivory Coast and Ghana. Cocoa is mostly used to produce chocolate.

By Friday on LIFFE, cocoa for delivery in December dropped to $1,933 a tonne from $2,027 a week earlier.

On the ICE Futures US exchange, cocoa for December recoiled to $2,936 a tonne from $3,114 a week earlier.

Brazilian currency weighs
Sugar: Prices hit one-month lows in London and New York, hit by the struggling real currency in top producer Brazil, but the market finished the week on a mixed note.

"After the re-election of Dilma Rousseff as president of Brazil, the Brazilian real dropped to its lowest level versus the US dollar since December 2008, which ... is weighing on the sugar price," noted Commerzbank analysts.

By Friday on LIFFE, the price of a tonne of white sugar for delivery in March traded at $427.40 compared with $426.30 a week earlier.

On ICE Futures US, the price of unrefined sugar for March dipped to 16.30 US cents a pound from 16.32 US cents a week earlier.

Coffee: Arabica fell to a one-month low of 185.65 US cents on forecasts of more rainy weather in top global producer Brazil, with extra pressure from the weak real currency.

By Friday on ICE Futures US, Arabica for delivery in December dipped to 186.10 US cents a pound from 192.10 cents a week earlier.

On LIFFE, London's futures exchange, Robusta for January rose to $2,032 a tonne from $2,019 a week earlier.

Rubber: Kuala Lumpur rubber prices nudged higher as major producing countries attempt to shore up the market.

The Malaysian Rubber Board's benchmark SMR20 rose to 160.20 US cents a kilo on Friday, up from 159.70 US cents the previous week.

First Published: Nov 01, 2014 10:23 IST

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