Crude oil weakens

Crude oil weakens further as investors sold crude again on worries that Eurozone crisis will curb economic recovery. It digested the positive news from Germany. Germany’ confidence index rose. Now the market reconsidered that the China’s RMB measures may not benefit commodities and so profit booking after yesterday’s rally also took place to some extent.

Fitch Ratings announced that it cut BNP Paribas’ rating to AA- stating that bank’s asset quality is deteriorated. This indicates that Europe is not yet out of woods.

Euro hits 3-week high against the dollar

The euro climbed to a three-week high against the dollar on Friday as a relatively successful Spanish bond auction in the previous session kept the single currency supported.

Worries over Spain’s finances were heightened earlier in the week on reports, which were subsequently denied by the European Commission, that the country was set to ask the International Monetary Fund, the European Union and the US Treasury for financial assistance.

Recession

Now there is chance of double dip recession. Eurozone is already in crisis. Several US States are also feared to face same problem in coming days. Economic uncertainty will be a global problem now. Formerly companies used to go bankrupt now will be the countries.

Except gold, all other commodities may be weak in this scenario. Some circumstances are similar to those of 1930s depression time. At that time US government tightened credit policy, the governments of different countries tried to solve the problem by throwing money. It surely will have inflationary consequences, but when and how dip is a big question.

There are few countries where big populations, namely China and India, transforming to consumer societies and creating good demand for metals and minerals which supports the demand and metal prices else which would have been very low in current recession. There are indications that in China , there have been over-speculation for stocks and Copper, and demand only from India may not be sufficient to hold the price.

Recent market recovery is delicate and will fall again and again when the markets get a small reason. 

Though the fundamentals of Gold are not so strong, investors will tend to buy Gold in this situation, which will keep prices of Gold higher. But if the tendency gets changed and people shift to silver, gold price may not sustain. Base metals will be weaker and silver also as it is used in industries may face less demand. Also coal, Iron ore and steel also will be weaker, too.

All these will be true only if there is a dip recession.