Commodities Continue to Suffer Before Fed Decision

Major commodity markets, many already trading near multi-year lows, could face more pressure should the U.S. Federal Reserve fuel fresh gains in the U.S. currency this week, weighing on dollar-priced raw materials.

The mere prospect of a climb in U.S. interest rates has lifted the dollar to multi-month highs, and it may rise further if the Fed confirms on Wednesday after its policy meeting that a rate hike may come sooner rather than later.  This would be bad news for commodities, analysts and investors said, due to their strong negative correlation with the U.S. dollar.

Precious metals may be the most susceptible, as gold prices in recent days have shown their strongest negative correlation with the dollar in two years, at over minus 0.94, indicating a nearly matching fall in gold as the dollar rises.  Silver and platinum have also displayed strong negative correlations, suggesting the precious arena could suffer as a whole if the dollar gains.

Reuters

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