Commodity Blog

Commodity Prices – Gold

The start of this week was an unpleasant one as most commodities took a great hit as concerns about Europe reemerged. The main reason for the pessimism was the warning from Moody’s Investor Service that it may downgrade the credit ratings of the eurozone countries. The European leaders attempted to address the problems during the summit on the last Friday, but the implications of the meeting will be felt over a longer term, not in an immediate future, so the rating agency wrote:

But in the absence of policy initiatives in the near future that stabilise credit market conditions effectively, Moody’s believes that the system remains prone to further shocks, which would likely lead to selective rating changes. As a result, Moody’s intention remains to revisit sovereign ratings of euro area and EU countries during the first quarter of 2012.

The Standard & Poor’s GSCI index of 24 commodities fell as much as 1.3 percent to close at 638.93 after earlier it reached 636.8, the lowest level since November 25.

Gold slumped from $1,707.50 to $1,663.90 per ounce on COMEX yesterday and traded today at $1,654.70. Silver slipped from $31.76 to $31.25 on the previous trading session. Copper was down from $3.5045 to $3.4460 per pound and traded today near $3.4435. Brent crude rose from $107.23 to $107.50 per barrel today on ICE after yesterday’s drop from $108.75 to $107.11 per barrel.

Commodities slumped yesterday after the European Central Bank signaled that it’s not going to expand its bond purchases. The central bank took steps for helping the eurozone by lowering its main interest rate by 25 basis points and it also announced measures to support the bank lending and money market activity. But market participants were disappointed as they were hoping for more involvement from the ECB.

It’s not surprising to see commodities like oil and copper among the losers, but gold again unpleasantly surprised gold bulls. Analysts again named fears of deflation as a reason for the bearishness of gold. The previous high prices of the precious metal were caused by the expectation that central banks would start printing money, inflating the financial system. The ECB still refuses to do so and it doesn’t look like the US Federal Reserve is going to announce a quantitative easing anytime soon. That was a great disappointment for gold.

Brent crude oil traded at $108.07 per barrel today as of 2:00 GMT on ICE, following yesterday’s slump from $109.60 to $107.55 per barrel. Gold was near $1,711.90 per ounce on COMEX today after on the previous trading session it dropped from $1,742.0 to $1,707.90 per ounce. Copper slid from $3.5500 to $3.4755 per pound yesterday.

Gold fell today, following yesterday’s advance, as the optimism for the eurozone again emerged. The European Central Bank will hold the monetary policy meeting today and many analysts believe that the Bank will cut its interest rates to reduce the pressure on the most indebted economies of the European Union. The precious metal rallied yesterday as France and Germany again showed disagreement in their approaches to battling the debt crisis. Gold was down today from $1,742.00 to $1,737.70 per pound as of 3:04 GMT on COMEX, following the advance from $1,730.60 to $1,741.00 per pound yesterday.

Oil hasn’t profited from the reemergence of the optimism as the US crude oil inventories unexpectedly rose last week. The stockpiles grew 1.3 million barrels to 336.1 million barrels. Forecasters predicted a decline by 800,000 barrels. January futures for delivery of crude oil rose $0.19 to $100.30 per barrel in electronic trading on NYMEX. Brent was down from $109.60 to $109.35 today on ICE after it fell from $110.70 to $109.50 yesterday.

In this video Jim Rogers, investor, author, and financial commentator, explains his reasons to be long on commodities. He thinks that even in case of a recession commodities, especially gold and silver, can be assets of choice for traders as governments will likely start printing money, debasing their currencies, and securities may turn out to be bubble. Rogers also mentions that the gold standard isn’t likely to be introduced.

Both copper and gold performed in a similar manner in the recent past, but the outlook for the metals is vastly different. Traders are bullish on gold, but bearish on copper. Why is that?

There is actually a single reason for such different expectations: the European debt crisis. The borrowing costs of the European nations continue to rise, while the credit ratings of Europe’s countries continue to be downgraded by rating agencies. That’s unfavorable environment for industrial metals, but a blessing for precious metals.

So why gold doesn’t look like it’s “blessed”? There are different theories on this matter, but two of them sound most logical. Firstly, the crisis makes investors to run to the dollar and gold suffers from that as it’s inversely correlated to the greenback. Secondly, demand for the yellow metal an inflation hedge wanes as the slowing global economy means slower inflation growth.

Gold closed at $1,681.00 per ounce today on COMEX after opening at $1,693.80. Copper fell to the closing price of $3.2680 per pound from the opening of $3.2730.

World Gold Council released its Gold Demand Trends report for the third quarter of 2011 last Thursday. As an addition to this invaluable report on gold demand and supply, they’ve also shared an interesting infographics with us:

If you want to learn more about the developments concerning this precious metal, including the supply growth by segments, please refer to the latest report by the World Gold Council:

• Gold Demand Trends Q3 2011

Bart Melek, Head of Commodity Strategy, TD Securities, explains in the interview his outlook for different commodities, including oil, natural gas, gold and silver. He talks about various factors, such as the European crisis, that have an impact on commodities. The video also mentions the place that commodities have in investor’s portfolio.

Gold declined today after it closed almost unchanged yesterday.

Gold could have profited from the debt crisis in the European Union. The problem is investors prefer to buy the US dollar rather than the precious metal as a safe haven. The greenback rose and gold fell.

It’s not the first time gold behaves as a simple commodity, not as a haven, suffering from negative market sentiment, not profiting from it. How long such unusual situation will last is hard to tell, but, perhaps, signs of slower economy of the United States could make the precious metal more preferable than the US currency? For now, though, the fundamental reports from the USA are good for the most part and the greenback remains in favor of investors seeking refuge from issues of the world economy.

Settlement for gold was at $1,769.90 today as of 7:31 GMT on COMEX. Yesterday, the closing price was $1,782.10, slightly above the opening of $1,781.60.

Both gold and copper was down yesterday and up today. But outlook for gold is bullish, while prospects for copper are not so good. The main reason for such different expectations is the situation in Europe that may increase demand for gold as a safe haven, but will certainly have negative impact on copper.

The European Commission released its growth forecast yesterday and it wasn’t optimistic. Gross domestic product of the European Union and the Eurozone is expected to grow only 0.5 percent. What made the Commission to look in the future with pessimism? The explanation was:

Three main risks are identified as weighing on the EU and the euro area economy: continued sovereign-debt-related uncertainty, the weakness of the financial industry and the sluggish world trade. There is a possibility of negative dynamics: slower growth could affect sovereign debtors and this, in turn, could deteriorate the condition of the financial sector, which would be unable to support growth.

Yesterday, Standard and Poor’s sent a message that France’s credit rating was downgraded, but later announced that was a mistake and the nation stays with its top AAA rating and stable outlook.

Gold traded at $1,768.20 per ounce today as of 3:31 GMT on COMEX after falling yesterday from $1,771.0 to $1,759.60. Copper spot price was $3.3695 per pound today, following the drop from $3.5640 to $3.3910 per pound on the previous trading session.

Investor Paul continues his series of videos about gold. This time the Greek Prime Minister George Papandreou has got in the focus as he is about to resign in favor of the interim government. From the technical analysis point of view, gold has broken through the upper border of the channel and looks to be ready for a rally.