Commodity Markets See Steep Decline in Gold, Silver, Oil, and Industrial Metals

The decline in the commodity market continued on Monday. A sharp fall was observed in gold, silver, oil, and industrial metals under the commodity market.

The price of gold dropped by about 9 percent, reaching its lowest level in over two weeks. The price of silver fell by more than 13 percent. Both these metals had hit record prices last week.

Oil prices fell by nearly 5.5 percent on Monday, dropping from recent multi-month highs. Similarly, the price of copper on the London Metal Exchange also decreased by about 5 percent.

Three main reasons are seen behind this decline. The appointment of the US Federal Reserve Chairman and the expectation of sluggish demand for metals including copper and iron due to the Chinese New Year led to the fall in the commodities market.

President Donald Trump selected Kevin Warsh as the next Chairman of the US Federal Reserve. According to Vivek Dhara, a commodity market strategist, 'The fact that safe-haven assets like gold and silver are being sold along with US shares means that investors consider Kevin Warsh a person who will adopt a tight monetary policy.'

According to him, the strengthening US dollar has put further pressure on gold, oil, and other metals. However, he maintains his forecast that gold prices will reach even higher levels in the fourth quarter.

Selling pressure increased simultaneously in the stock and commodity markets after US President Donald Trump selected Kevin Warsh to replace the current Fed Chairman Jerome Powell on Friday. This has strengthened the dollar.

The impact of Wall Street was also seen in Asian stock markets. Amid high selling of gold and silver, the market became more volatile amidst upcoming corporate results, central bank meetings, and economic data this week.

Selling in gold and silver intensified further when the CME Group announced an increase in the margin required for futures trading of metals. As margin increases require investors to set aside more money, many have started withdrawing their investments.

On Friday, the price of gold experienced its largest single-day drop since 1983, falling by more than 9 percent. Silver plummeted by 27 percent, marking its largest daily decline in history.

The energy market also saw pressure on Monday. Oil prices fell as signals emerged that tensions between the US and Iran might ease slightly. Trump had stated that Iran was engaged in 'serious negotiations' with the US.

Furthermore, news that the Iranian Navy would not conduct military exercises in the Strait of Hormuz was also seen as a sign of reduced tension.

The market was also pressured by the expectation of slowing demand for copper and iron ore as the Chinese New Year (Lunar New Year), starting from February 15 in China, approaches. China is the world's largest metal buyer.

According to analysts, end-user purchasing and trading will remain slow before the festival. In other commodities, Tokyo rubber fell by about 3 percent, while wheat and soybean prices in Chicago dropped by about 1 percent.

Vivek Dhara says, 'The main question is whether this decline is a long-term trend or just a normal correction?'

His conclusion is, 'We view this as a temporary market correction and a buying opportunity, not as a fundamental change.'(From Reuters)