Last week news about the decline in commodity futures prices was all over the place. All the major benchmark global commodity indices saw a sharp fall last week encompassing the energy complex, precious metals, industrial metals and agricultural commodities sector. One factor that aided this fall was the strengthening of the dollar during the week.

Dollar, which has been depreciating against euro and other major currencies in the recent period, saw a reversal as it appreciated against the euro by more than 3% during the week. The dollar index strengthened by 2.6% during the week. A strong dollar makes commodities, which are dollar denominated, expensive, thereby cooling their demand. Strength of the dollar was largely a result of the weakening of the euro as the ECB kept its key rate at 1.25% and there were no clear signals about its intention to raise the key rate in the near future.

The biggest news about commodity futures that got extensive media coverage was the fall in silver futures. Silver futures on COMEX fell by more than 26% during the week compared to its opening price. Silver futures closed at $35.28 per ounce after having opened at $48.09 at the beginning of the week. Chicago Mercantile Exchange (CME), of which COMEX is a part, has been hiking its margins (which can be loosely understood as earnest money to be paid up by those taking positions on commodity exchanges) on silver futures for the last few weeks, including last week, in order to contain volatility in prices.

The Shanghai Gold Exchange, too, announced (for the second time in two weeks) a hike in the margins of its silver futures contract. Other than the appreciation of the dollar the further hike on margins played on the minds of market participants causing a retreat in silver futures. However, not much noise is being made about the role of commodity exchanges in the decline of commodity prices. Somehow it is fashionable to target commodity exchanges only during episodes of price rise.

Exchanges (including those in India) have robust margining system in place which triggers off whenever there is a change in volatility thereby ensuring integrity of trade and avoidance of default. Gold futures tumbled by close to 4.8% during the week. The gold to silver ratio stood at 42.27 by the end of the week. It may be recalled that in the last few weeks the ratio was hovering in the range of 32 to 35.

As is well known by now, last week crude oil futures saw a drastic fall in prices with the near-month WTI crude oil futures falling by more than 14% closing the week at $97.18 per barrel after opening at $113.89 per barrel at the beginning of the week. Brent crude futures declined by 13.45% closing at $109.13 per barrel at the end of the week, having opened at $126.1 at the beginning of the week. Among other factors, the strong dollar contributed to this fall as did the fear of margin hikes in crude futures.

Based on last week?s movement, it is difficult to predict the trend for the future and the markets are still trying to make sense of the mixed news on the macroeconomic front coming from various parts of the world.

Turning to domestic commodity futures markets, a mixed trend was observed in the agricultural commodity complex. Barley futures saw quite a bit of volatility and even hit the upper circuit during the week before coming down to almost where it opened at the beginning of the week. On a weekly basis the near-month contract in barley increased by 0.12%. It was reported that this was mainly because of the increased demand in spot market from the alcohol industry.

Near-month castor seed futures rose at the beginning of the week, but declined later. On a weekly basis, it declined by 3.7%. Guar seed prices in the recent past have been rising amidst news of increased export demand for the seed. Regardless of the intra-week movement on a weekly basis guar seed and guar gum futures saw a rise of little more than 4% and 6%, respectively. Among the commodities that saw a decline in the near month futures prices during the week were rape mustard seed, maize, sugar and potato.

*The writer is senior economist, NCDEX. The views expressed are her personal