After the sharpest weekly loss through Friday, commodity prices advanced on Monday as Europe over the weekend promised a massive bailout package for debt-trapped Spain and Chinese imports staged a rebound, suggesting fears of a slump in raw material demand due to the global slowdown may have been exaggerated. The Thomson Reuters-Jefferies CRB index gained 0.46% to 274.13 on Monday.
For India, which is facing the double whammy of high fiscal and current account deficits, any rise in prices of commodities ? of which it is a net importer ? is bad news. Worried over persistently high inflation, the country?s policymakers have been pinning hopes on a likely prolonged dip in global commodity prices.
However, concerns about the pace of economic recovery, polls in debt-hit Greece on Sunday, apprehensions that the generous deal to Spain may attract criticism from other crisis-hit European nations and fears over fresh supplies after a breakdown in talks between the United Nations and Iran bridled excessive optimism. Brent pared some initial gains and eased to $100.30 by 1120 GMT. US crude, too, gained $0.85 to $86.60.
Copper rebounded from a near six-month low last week, and the three-month contract on the London Metal Exchange gained around 3% to a session high of $7,506.75 a tonne.
Goldman Sachs said it expected a 29% return from S&P?s GSCI Enhanced Commodity Index over the next one year, with energy and base metals leading the pack. Returns on energy investments will likely be 41% in one year, compared with 23% in base metals and 18% in precious metals, while agriculture is predicted to lose 14% in the period. European policymakers will be able to contain the debt crisis, while recovery in the US and China is set to continue, Bloomberg quoted Jeffrey Currie, the head of commodities research at Goldman Sachs in New York, as saying.
Commodities, according to the S&P GSCI Enhanced Commodity Index, shed 13% in May and have dipped 9.1% since the start of the year.
Gold inched up for a second day on Monday as the euro appreciated against the dollar after the deal to rescue Spain boosted sentiments. US gold futures for August delivery rose $1.90 an ounce at $1,593.30 in intraday trade. Silver gained 0.5% at $28.62 an ounce, tracking gains in the broader commodity asset class.
However, prospects of a strengthening global economy may snatch some glitter away from gold, the investors’ safe-haven asset, in the medium term if the recovery is sustained, said analysts. They also cautioned against inferring excessive optimism from current Chinese demand, as actual demand from users stayed weak and the bulk of oil and copper exports in May may have been aimed at boosting reserves.
China’s implied oil demand rose just 0.4% last month from a year before, following first yearly decline in over three years in April. Some other data indicate China’s economy is struggling as prices, output and sales at home slowed while trade remained buoyant, and its manufacturing sector barely grew in May.
Corn futures in Chicago firmed up from a nearly two-week high hit on Friday on dry weather concerns, but the market remained cautious ahead of the release of the US government crop estimates this week. Wheat, soyabean, raw sugar and coffee, too, rose on relief to Spain that revived overall trading sentiments.
