Skip to main content

Commodities fell their most in three weeks Tuesday after major consumer India indicated it will tighten its economy as much as needed to fight inflation, just like China.

India hiked interest rates for a seventh time in 10 months, saying inflation was likely to continue due to rising costs for raw materials and food.

Copper fell 3 per cent; oil 2 per cent and gold 1 per cent, reacting to the rate hike and a rebound in the dollar after mixed U.S. and U.K economic data.

The 19-commodity Reuters Jefferies CRB index , a global benchmark for the asset class, fell 1.5 per cent, losing its most in a day since Jan. 4.

The CRB has fallen in three of the last four sessions since China announced its economy grew at a faster-than-expected 10 per cent in the last quarter, worrying investors that it will resort to more aggressive tightening to curb inflation. Since the start of 2010, China, the world's No. 2 economy, has raised banks' required reserves seven times and interest rates twice.

"There is increasing concern about rising interest rates in Asia. It's raising the fear that liquidity in the global markets will continue to shrink," said Stephen Briggs, commodities analyst at BNP Paribas in London.

The U.S. Federal Reserve will issue Wednesday its first monetary policy statement for the year, and investors will be looking for any wording suggesting inflationary pressure could bring about a shift in the ultra-loose policy practiced by the Fed since the financial crisis.

Analysts said there signs that investors were becoming anxious of markets overextending themselves and wanted to see proof of stronger fundamentals before prices move even higher.

The CRB rose a combined 29 per cent in the last two quarters. Since this year began, it has lost 1.6 per cent after falling in half of the 16 sessions so far for January. Analysts say this shows the uncertainty plaguing investors even as market bulls try to push oil back above the $100-per-barrel mark seen in 2008 and copper to new record highs.

"It seems that the infatuation with commodities may be coming off the boil given some of the macro headwinds that face the group going into 2011," said Edward Meir, energy and metals analyst at MF Global in New York.

"We should point out that we saw a sharp commodity-wide sell-off at this time last year as well, following equally sharp gains that were notched up during much of December 2009 and into early January 2010."

But some suggested the correction of the past few sessions were no more than blips in a broader rally. Investment bank Goldman Sachs, one of Wall Street's most authoritative voices in commodities, said oil and copper remained in a bull market with agricultural commodities, though gold has faltered.

Oil analysts polled by Reuters also revised their 2011 forecasts upwards by around $4 in January, citing Chinese demand, although they warned that gains over $100 a barrel would be short-lived as inventories remain strong.

U.S. oil's benchmark West Texas Intermediate crude settled down 2 per cent, or $1.68, at $86.19 a barrel, its sixth consecutive loss.

Copper fell to its lowest in a month. Benchmark copper on the London Metal Exchange closed at $9,250 a tonne, from $9,529 at Monday's close. In New York, copper fell 2.8 per cent, or 12.25 cents, to settle at $4.2260 per a lb.

Tin bucked the broad decline in base metals, hitting a record high of nearly $28,200 a tonne in London on supply woes in top producing country Indonesia.

Gold fell for a fourth straight day, putting the precious metal on track for its first monthly drop since August, as safe-haven demand evaporated and investors booked further profits on the 2010 rally. U.S. gold futures settled down 1 per cent, or $12.20, at $1,332.30 an ounce.

Report an editorial error

Report a technical issue

Editorial code of conduct

Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 17/04/24 7:00pm EDT.

SymbolName% changeLast
GS-N
Goldman Sachs Group
+1.78%403.91

Interact with The Globe