Rising Rates, Firm Dollar Weigh on Commodity Prices

Copper futures fell on Tuesday to their lowest level since December 12, driven lower by a number of factors including abundant supply, rising U.S. interest rates, a stronger U.S. Dollar and concern about trade wars.

May Comex High Grade Copper futures settled at $3.0380, down $0.0440 or -1.43%.

According to traders, the weakness started during the European afternoon session before spreading to the London Metal Exchange. In the U.S., the market accelerated to the downside as U.S. computer-driven funds stepped up selling.

Early in the session, prices were pressured by data showing LME copper stocks grew by a further 3,000 tonnes on Tuesday to 322,475 tonnes, bringing this month’s rise to 61 percent. This news offset bullish speculation that potential strikes at copper mines could create shortages.

Also weighing on markets were fears of a global trade war after U.S. President Donald Trump imposed hefty import tariffs on steel and aluminum. Sources in Washington said he was also poised to unveil new tariffs targeting China by the end of this week.

Finally, the U.S. Dollar rose broadly on Tuesday as investors awaited interest rate clues from the Federal Reserve on Wednesday. Higher rates should support the dollar, which would put a limit on foreign demand for dollar-denominated commodities like copper.

Gold

Gold closed lower on Tuesday as the U.S. Dollar strengthened ahead of a Federal Reserve meeting at which the Federal Open Market Committee is widely expected to raise interest rates for the first time this year.

April Comex Gold futures settled at $1311.90, down $5.90 or -0.45%.

Higher U.S. interest rates tend to be bearish for gold prices because they raise bond yields, reducing the appeal for the non-yielding asset. They also tend to boost the dollar, which makes dollar-denominated gold a less-desirable asset and more expensive for foreign buyers.

Talk of rising rates has dominated the trade in the gold market since the start of the year. This has helped push gold prices down about 4 percent from a 1 ½-year high reached in January.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil rallied to their highest level in three weeks on Tuesday as tension between Saudi Arabia and Iran and the possibility of further declines in Venezuelan output helped offset the impact of rising U.S. crude production.

May WTI Crude Oil settled at $63.54, up $1.41 or +2.27% and June Brent Crude Oil finished at $67.13, up $1.31 or 1.99%.

Geopolitical risks were at the forefront on Tuesday after Saudi Arabia called the 2015 nuclear deal between Iran and western powers a “flawed agreement” on Monday, on the eve of a meeting between Crown Prince Mohammed bin Salman and U.S. President Donald Trump.