A fourth round of easing measures announced by the US Federal Reserve failed to lift the commodity markets on Thursday, as underlying concerns about a supply glut and a budget crisis in the worlds largest economy restrained the bulls. Key commodities, including brent crude oil, gold and copper, dropped from Wednesdays levels as investors remained concerned the Feds decision to link its monetary policy to unemployment and inflation figures could limit the length of its intervention.
The Thomson Reuters/ Jefferies CRB Index, which tracks the price movement of 19 commodities, went up 0.5% on Wednesday to 295.19 after responding to the Fed announcement, but again retreated on Thursday and remained flat at Tuesdays level.
The Fed said late on Wednesday it planned to buy $45 billion in longer-term treasuries every month on top of its $40 billion monthly purchase of mortgage-backed securities as expected, but set unemployment and inflation thresholds for its exit strategy.
Moreover, failure to reach a solution on the US fiscal cliff $600 billion worth spending cuts and tax hikes that are set to kick in early 2013 that economists say could push the US back to recession spooked investors, especially when the recovery in Chinese economy seems fragile as of now.
Brent crude dropped 35 cents to $109.15 a barrel in intraday trade on Thursday, while US crude tumbled 39 cents to $86.38. In Vienna, OPEC oil ministers agreed to retain its 30-million barrel-a-day output target and would meet next on May 31, 2013. This means supplies would remain adequate although demand prospects may not improve.
The strengthening of the US dollar by 0.1%against a basket of currencies also weighed on oil prices .
Gold, too, fell on concerns over limits to the US stimulus, even though the precious metal usually benefits from easy monetary policy because of fears of inflation. Gold has risen nearly 9% so far this year. Spot gold dipped 1% to $1,693.80 an ounce earlier in the day after Feds move to buy bonds had pushed up the prices to a near two-week high of $1,723.01 on Wednesday. US gold futures lost 1.3% to $1,695.5 an ounce before recovering a bit to $1,701.40.
Copper on the LME lost almost 1% to $8,073 a tonne in early trade, from a last bid of $8,130 at the close on Wednesday. Copper prices have surged by more than 7% in the last month and the industrial metal is now up by more than 6% on the year.
Putting pressure on base metals, the euro also fell to a session low against the dollar. Analysts said with the pace of Chinese recovery still uncertain, prospects of base metals remain bleak, as inventories, especially of copper, are swelling.