(By Salman - iStockAnalyst Writer)The past few days have been quite nervous for global financial markets. Fannie/Freddie has been taken over by government, Lehman Brothers filed for bankruptcy, leading insurer AIG collapsed, Merrill Lynch Washington Mutual and Wachovia have been sold off to avoid bankruptcy. The remaining two investment banks Goldman Sachs and Morgan Stanley have transformed themselves into Fed regulated conventional banks. The entire financial sector is in a mess as firms have incurred huge losses due to bad mortgage debts and toxic assets in their book. The route in financial industry has spilled over to economy as well. Jobless claims and Unemployment rate are constantly climbing. Consumer spending is dipping while Retail Sales figure too is heading southwards. In order to restore investor’s confidence in the market, US Treasury proposed the $700 billion bailout plan, also known as Troubled Asset Relief Program (TARP). The plan was supposed to provide mechanism for the former to buy bad debts in order to rescue credit market, which has virtually frozen in recent days. The plan was being seen as “mother of all bailouts”. However, U.S. lawmakers in the House of Representatives rejected the intervention proposal on 29th September, further leading to confusion and chaos on the Wall Street.

A natural question which comes to mind is what will be the impact of turmoil of such scale. The question holds special significance since the current crisis has claimed a number of influential hedge funds known for investing aggressively into commodity space.

Plainly speaking, Commodity markets are still quite uncertain about their direction in near future. Rules are being rewritten, correlations are being broken. Among commodity Gold has surged ever since trouble resurfaced in Wall Street with the collapse of financial majors. Though Gold prices have climbed in international markets as well, it’s still far from its previous high. The sharp jump in the price of yellow metal is being attributed to safe haven buying by central banks and investors alike. Gold, being a precious metal has been traditionally seen as a safe refuge in times of political and economic turmoil. Investors have been shifting to Gold in a big way as the yellow metal is seen as a hedge against inflation. However, overall confusion still persists when it comes to Gold.
Silver, which in the past used to follow Gold, has remained weak. It is being argued that since Silver find its uses in various industries like photography, electronics, medicine etc, it was bound to be impacted negatively by the crisis in financial markets.

Crude too has remained range bound with downward bias. After a sharp correction from $147 to $90.51, there was a brief pullback and the NYMEX Crude Oil contract even touched $130 in intraday trade. However, prices have remained lack luster ever since on concerns of slowing global economy will translate into lower consumption of fuel.

Base Metals on the other hand have been the worst affected. Copper has retreated 25% from 52 week high. Zinc, Lead had been already battered down earlier. Since the metals primarily are used in Construction and Auto sector, the sectors worst affected by the current crisis, such a fate hardly comes as surprising.
Dollar has also played a major role in taking the shine off the commodity space. Though not fundamentally driven, the greenback has gained considerably against Euro.

Economists and experts are however unanimous that though things look bleak for commodity space in near term, seen over a longer period of time, commodities have still a long way to go. It is being pointed out that though demand has slackened, commodity prices are expected to be stronger for longer term as financing of newer mining and drilling projects will becomes a real issue and will definitely have an impact on the supply. Thus, the current meltdown, according to experts, is nothing but a correction of a long term structural bull market and hence an attractive buying opportunity in Commodities.