Singapore: Volatile commodity markets paused on Tuesday after a few tumultuous days that saw record rallies in oil and gold, as euphoria about a US government plan to shore up debt markets gave way to doubts about its funding.
The dollar stabilized after tumbling to a six-week low against the euro overnight as commodities soared.
But initial exuberance about Washington’s $700 billion (Rs31.99 trillion) answer to the financial crisis, being fought over in Congress, subsided and fears grew that its cost might explode the US budget deficit.
“Deep down, people don’t like the package and are dumping the dollar. Commodity prices will rise, not because of rising demand, but because of dollar valuations,” said Jonathan Barratt, managing director of Sydney-based Commodity Broking Services Pty Ltd.
“That could lead to a period of stagflation, which is probably what the Fed wants, and give us a breathing space, but the volatility won’t ease until after Congress approves the deal and we see some of the glue that will hold things alltogether.”
Front-month US light crude fell $2 to $107.33 a barrel at 6.02pm IST. On Monday, prices jumped by as much as a quarter, and posted their biggest ever one-day dollar gain.
“I think traders are taking profits after the rally in both October and November contracts last night. The market will probably wait and see what’s going to happen to the US rescue plan before making their next moves,” said Gerard Rigby, an independent energy consultant.
Gold fell $3.20, or 0.4%, to $897 an ounce (28.35g) from New York’s notional close on Monday, having hit an intra-day high of $908.80—its highest level since early August.
“I think the next two-three days will be very telling,” said Darren Heathcote of Investec Bank (Australia) Ltd in Sydney.
Despite gold’s gains, dealers remained cautious, with the metal already moving in a wide range since tumbling to an 11-month low of $736 an ounce just two weeks ago. Gold is way below a lifetime high of $1,030.80 hit in March.
“I think it’s more speculative than safe-haven buying,” said a dealer in Singapore.
Copper futures in Shanghai scored their third day of gains following increases in London overnight. London Metal Exchange copper ticked up $4 to $7,254, near its highest in almost three weeks, after gaining about 8% from last week’s lows after the US bailout plan.
“The safest place to be is in cash, standing on the sidelines. It takes a brave man to pick market direction,” said Michael Cooper, director at Sydney-based risk advisory and fund management firm, Noah’s Rule. “Volatility is ruling the day and it wouldn’t surprise me to see markets correct sharply, then two days later be back where they started.”
Chicago soya bean and corn futures edged lower, after surging in the previous session.
Wheat futures firmed, building on strong gains in the US trade as news of dry weather stress on crops in Australia and Argentina lifted the market.