COMMODITIES-Muted action for 2nd day; gold up, cocoa/coffee down

Tue Jan 8, 2013 6:09pm EST

* Markets focused on Part 2 of U.S. fiscal drama
    * Oil, copper up modestly
    * Gold jumps 1 pct, first rise in 3 days
    * Cocoa, coffee prices slump after Tuesday rally

    By Barani Krishnan
    NEW YORK, Jan 8 (Reuters) - Most commodities saw muted
action for a second straight day on Tuesday as worries about
another impending political battle over U.S. fiscal issues
sidelined traders and investors. 
    Precious metals bucked the trend. Gold prices rose for the
first time in three days and closed up nearly 1 percent on
strong Asian physical demand and bargain-hunting. Platinum
 and silver also rallied.
    On the other end, cocoa and coffee prices fell sharply,
reversing Monday's rally.
    The Thomson Reuters-Jefferies CRB index settled
down 0.2 percent after 11 of the 19 markets on the widely
followed commodities indicator ended in negative territory.
Brent crude Oil rose by half a percent and copper
 0.1 percent.  
    "Most markets continue to drift and seem to be biding their
time as they wait for the congressional negotiations on 'Part
Two' of the fiscal cliff drama to get underway," said Edward
Meir, metals analyst at Intl FC Stone.
    Markets were on tenterhooks through December, with opposing
lawmakers in Congress locked without a deal over proposed tax
increases and spending cuts that economists warned could push
the U.S. economy back into recession.
    Many lawmakers and their aides fear things may get more
toxic during a series of bitter struggles expected in the next
few months over the nation's debt and deficit burdens. At stake
is the U.S. government's ability to get its finances under
control and whether it might default on debts and suffer further
downgrades in the U.S. credit rating. 
    
    GOLD SPIKES
    Trading volume in gold futures on New York's COMEX were
about 5 percent above the 30-day average, preliminary Reuters
data showed. The front-month futures contract settled up
$15.90, or nearly 1 percent, at $1,662.20 per ounce.
    It was the first time the market had risen since Wednesday's
close, amid caution the U.S. Federal Reserve might curtail its
highly stimulative monetary policy.
    The Fed's December policy meeting minutes, released on
Thursday, showed several officials of the central bank
considering a slowdown or stop of its quantitative easing (QE)
that investors have figured into their economic outlook. The
Fed's balance sheet of nearly $3 trillion risks instability with
further expansion, the officials reasoned. 
    Successive rounds of QE, or printing new money to boost
asset prices, have been a primary driver of higher gold prices
in recent years. The move has put downward pressure on long-term
U.S. interest rates and fueled inflation fears.
    Some traders expect gold to fall as much as $30 an ounce if
fears of a QE rollback increased.
    "Gold could certainly test its $1,625 support again, with
prices drifting materially below the $1,600 mark if there is
more talk of an early stop to QE in the coming days," said Bart
Melek, head of commodity strategy at TD Bank. 
    
    COCOA, COFFEE SLIP
    Cocoa futures inched down to the lowest level in several
months as dealers eyed weather conditions in top growing region
West Africa, while arabica coffee prices dropped more than 3
percent, giving back the previous day's gains.
    Just a day earlier, cocoa futures in New York rose 2 percent
  in their biggest one-day rally in three weeks after hitting a
technically over sold level. Arabica coffee also surged about 2
percent on buying ahead of an index rebalancing later this week.
    In Tuesday's session, front-month cocoa futures in New York 
 finished down $52, or 2.3 percent, at $2,215 per tonne,
for its weakest settlement since July 25, 2012.
    Cocoa prices fell as traders waited to see if seasonal dry
Harmattan winds in West Africa would impact the cocoa crop in
the largest growing nation, Ivory Coast. 
    "Cocoa trees do not like such weather. If it persists, the
size of beans in the pods will be very tiny as from February,
hence of bad quality," said Salam Kone who farms in the
outskirts of Soubre.
    Arabica coffee's front-month contract in New York 
closed down 2.25 cents, or 1.5 percent, at $1.4815 per lb.
    Arabica dropped about 3 cents, or 2 percent, within 10
minutes earlier in the session, in what dealers believed was
speculative short selling.
    "Most people were expecting the market to go up because
index funds have announced very publicly that they have to be
buyers over this week and coffee's one of the commodities that
they have to buy the most," said one U.S. dealer.
    "My guess is that they're trying to spook the longs and to
spook anybody at origin who's waiting to take advantage of index
buying and try to convince them to panic and sell the market
lower, to negate the positive impact of the index buying this
week," the dealer said, referring to index funds. 
    
 Prices at 5:14 p.m. EST (2213 GMT)      
                             LAST/      NET    PCT
                             CLOSE      CHG    CHG
 US crude                    93.15    -0.04   0.0%
 Brent crude                111.94     0.54   0.5%
 Natural gas                 3.218   -0.048  -1.5%
 
 
 US gold                   1662.20    15.90   1.0%
 Gold                      1659.94     1.34   0.1%
 US Copper                  367.20    -0.60  -0.2%
 LME Copper                8080.00     9.00   0.1%
 Dollar                     80.336    0.080   0.1%
 
 
 
 US corn                    688.75     3.25   0.5%
 US soybeans               1413.75     3.00   0.2%
 US wheat                   750.50    -0.75  -0.1%
 
 
 US Coffee                  148.15    -2.25  -1.5%
 US Cocoa                  2215.00   -52.00  -2.3%
 US Sugar                    18.67    -0.19  -1.0%
 
 
 US silver                  30.465    0.383   1.3%
 US platinum               1580.60    26.80   1.7%
 US palladium               667.85    -2.15  -0.3%
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