Commodities hit multi-year lows

Commodity markets were hit and stocks and bonds were in the firing line on Monday, as expectations for a first increase in US interest rates in almost a decade next month pushed the dollar to a seven-month high.

Gold extended losses on Monday, falling towards a near six-year low reached last week. Spot gold had dropped 0.7 per cent to $1,070.01 an ounce, down for a 13th session in the 16 trading days this month. The metal declined to $1,064.95 last week, the lowest since February 2010.

Higher rates tend to weigh on gold, as they lift the opportunity cost of holding non-yielding assets, while boosting the dollar.

“We perceive gold price at around $1,080 somewhat like a technical play, a reflection of market behaviour of ‘sitting on the fence’ as they await the FOMC meeting in December,” said OCBC Bank analyst Barnabas Gan, referring to the Federal Open Market Committee.

“We keep our year-end forecast of $1,050,” Mr Gan said.

More pressure on bullion is expected as investors exit positions in the metal ahead of the looming US rate hike.

Industrial metals copper and nickel plunged and oil prices whipsawed, while the euro fell as low as $1.06 as the prospect of more policy easing by the ECB in Europe was compounded by a security lockdown in Brussels.

Oil prices remained highly volatile, with US crude off $1.30 or three per cent at $40.60 a barrel at one point and Brent down two per cent at $43.57 before both jumped on comments from Saudi Arabia on co-operation with other producers.

“The biggest factor here is the dollar,” said Hans van Cleef a senior energy economist at ABN Amro in Amsterdam. “It is having an impact on all major commodities at the moment.”

“More and more investors are watching it (commodities sell-off) and sentiment therefore gets more jittery.”

European stocks were down 0.5 per cent despite better-than-expected euro zone data as the slump in commodities and the unrelenting appreciation of the dollar dominated sentiment at the start of the week.

Copper slumped to a fresh six-and-a-half year low and nickel dived more than four percent to its lowest since 2003 as traders bet metals prices still had further to fall, given slowing factory demand in China.

Emerging markets were being squeezed again. “Interestingly, (equity) markets are treating the prospects of policy divergence reasonably well,” said Jo Masters, a senior economist at Australia and New Zealand Bank.