Commodity Blog

Posts Tagged ‘2010’

This video is a medium-term analysis of the spot gold chart with some predictions based on the trend analysis, support and resistance levels and Fibonacci retracement. Although the gold behaved in a very bearish manner during December, the current month looks to be promising for this shiny commodity. The gold may continue its long-term rising trend in January with some profit potential for the bulls and an opportunity to go short from the higher point for the bears.

Platinum is mainly used in manufacture of the autocatalysts. It is also used in petroleum, electrical, chemical and glass industries as well as investment asset. In 2009 demand for the metal fell as car demand declined because of global economy recession. What future can be expected for platinum in 2010?

As global economy rebounds so demand for platinum from industries, particularly car industry, grows. Jewelry industry showed astounding 80% growth of demand for the metal. Demand in China is steadily growing, expected to add 900,000 oz.

Will supply catch up demand in the next year? Opinions differ at this matter. Supply from South Africa fell 10.6% in 2009. Production in Russia declined 11% in the previous year. But in 2010 output from these countries can rise in response for growing prices. In other regions production slightly grew. Some analysts predict deficit as demand climbs, while other analysts forecast oversupply.

But even in case of oversupply platinum price may in fact grow due to investor involvement. Platinum ETFs increased 89% in 2009. Analysts say that the commodity will be traded in range $1,100-$1,900 in the next year, $1,350 being the most likely price.

Silver has history of being a traditional store of value. It is also used in industry, medicine, photography, jewelry manufacturing and in the making of coins. But should investors consider this precious metal when devising their trading strategies these days, when everyone’s attention seems to turn to gold, and how the commodity will perform in the future?

Analysts predict that silver will follow gold performance, which means it should steadily rise in 2010. It is not unexpected if we’ll recall the fact that most factors favorable for gold, like declining dollar and demand for commodities as investment assets, are also bullish for other precious metals, including silver. But, what’s even more interesting, some factors, that are bearish for gold, are in the same time favorable for silver. Just think how many investors and consumers will be repelled from gold by its skyrocketing price. And all these people may turn their attention in silver.

There are still some factors which are bearish for silver. With widespread use of digital photography demand for silver in photography industry was diminishing at pace around 10% a year and even 16% in 2008. Yet this decline in demand can be easily offset by demand from other industries like medicine, where silver used because of its antibacterial qualities. And while new technologies are replacing the old, silver is finding new applications, laptops and cell phones being the examples of modern technologies requiring silver.

Demand from industry rise as economy rebounds. Will supply satisfy this demand? It is not likely. It is true that output in China Russia, Mexico, Peru, Australia, Turkey and Bolivia is growing. But about 80% of silver are mined as a byproduct of other base metals and there are only a few pure silver mines left, with their reserves are depleting. And we should remember that most silver is not recycled, like gold, as it has much lower value. Therefore silver is gone forever after it is used.

Demand for silver is rising while stockpiles are dwindling. Analysts estimate silver price in 2010 in the range from $25 to $27.50. But as silver is greatly undervalued compared to gold, we can expect even greater increase in price of the precious metal in the future years as trader turn their attention to this less expensive but quite profitable commodity.

Crude oil is the raw material used in producing heating oil, gasoline, jet fuel, diesel and other petrochemicals. Three greatest oil producers in the world are the United States, Russia and Saudi Arabia. Crude oil prices directly affect the cost of home heating oil, gasoline, electric power generation and manufacturing. Being the major energy source, oil attracts attention of many investors. Oil price was steadily rising through 2009. Will this trend remain in 2010?

Let’s look at different factor influencing oil prices. As crude oil used in production of unleaded gas and heating oil, prices of these commodities can influence price of the oil. A very cold winter results in higher demand for heating oil, pushing prices for crude oil up. A very active driving season during summer vacations can boost the demand and, as a result, prices for crude oil. Obviously, potential world crises in oil-producing countries may also significantly boost prices of the commodity.

Generally, outlook for oil prices is rather positive. Global economy recovers and rebounding economy requires energy sources, spurring demand for oil. OPEC is expected to decrease its oil production. Production output of non-OPEC countries, while rising, will not offset growing demand for the energy source. Declining dollar forces investors to invest in commodities, like oil, as a hedge measure. Easing credit markets makes it cheaper to store crude oil. All these factors promise bright future for a crude oil.

Telling all this, we should remember that not everybody agree on such optimistic outlook. Some analysts insist that rising supplies, partially because of new technologies giving access to new drilling sites, will catch up demand and will drive oil prices down. Also declining dollar can make prices, measured in U.S. currency, somewhat misleading. Analysts point out that, while dollar prices have surged this year, prices measured in non-U.S. currencies rose not that much and actual oil prices were similarly increased not very much.

So, what price for the black gold can be expected in 2010? There are different opinions on this matter. Technically, long term support level exists at $50 per barrel. Actually, even most pessimistic predictions are not putting oil price in 2010 below $60 level. Another major support and resistance level rests at $75. Most analysts think that the commodity will be traded at this level or somewhat higher in the next year. There are forecasts that put prices as high as $90 in 2010 and even $110 in 2011. But we should remember about another resistance level at $100 which is hard to overcome both from technical and psychological points of view. Take all this factors into account when deciding your trading strategy for the oil but remember to watch market carefully as, in the end, it says what is right and what is wrong.

Gold is a hot topic nowadays, experiencing high volatility, yet remaining primary investment medium. Precious metals have always been attractive to investors because of their tendency to keep their value. In times of economic crisis or inflation, for example, the value of paper money might fluctuate, but a hard asset will always be worth something. As a result, traditionally precious metals have been considered a ”safe haven” in times of crises of confidence and economic and financial instability. The question is: can gold keep on its rally? Or buying today would be buying high and selling low?

To answer this question we must consider factors influencing the precious metal. First, let’s look at two major factors on which gold depends: inflation and fear. Inflation usually occurs while the economy is growing. And, as result of growing economy, there’s little fear among trader and investors. Inflation makes investors to diversify, increasing gold appeal. In case when fear prevails, gold serves as a hedge against the unreliability of other kinds of financial assets. As you can see, the two conditions of gold’s performance are quite exclusive: if there’s inflation, there’s little fear, and if investors are fearful, inflation is likely to be subdued. If these two factors (fear and inflation) can somehow come together an optimal conditions for very sharp appreciation will be created. If dollar begins to decline uncontrollably, inflation would be inevitable, causing widespread panic and fear leading to the complete destabilization of the system. If the U.S. currency fails to inspire confidence as a source of value, gold could easily skyrocket to astronomical levels of many thousands of dollars. The problem with this scenario is that it is very difficult to expect the dollar lose its status as the global currency in the next five ten years except if a catastrophic economic cataclysm would destroy the international financial system.

Now we should consider other factors influencing gold. As side note, we should remember that all financial markets are mainly driven by the expectations of the events that may take place in the future, not by events themselves. And most expectations are either negative to the greenback (which is therefore positive for gold) or directly positive for the metal. Some of possible factors that are bullish for gold are: China is going to continue or even increase gold purchases; UAE, Saudi Arabia and other Arab banks are expected to fail, and they are stuffed with U.S. debt; U.S. is expected to have a double-dip recovery, which means another run from stocks and into gold soon; tension in the Middle East is growing; oil prices are expected to climb with the global economic recovery, causing the dollar to tumble; the Comex gold exchange in New York is expected to get in trouble as European countries demand return/delivery of their physical gold in masses; start of wedding season in India.

China is a very illustrative example of country, stockpiling gold on concern that falling dollar will shake the global economy. This country, being the largest gold producer expected to produce over 300 metric tons of the precious metal, does not export any. What’s more, it is going to build up its hold reserves to 10,000 tons over the next decade.

So, what conclusions can be made and what advices can be given? As you can clearly see gold is definitely bullish, remaining a reliable safe haven. Analysts estimate $850-$1,400 as a trading range in 2010. Instead of investing directly into the commodity at this late point in the game, many traders are purchasing future option contracts that allow them to speculate with leverage while managing risk. If you want to participate in the gold market, you have to decide what type of investor you are going to be. A long-term investor who thinks that gold will eventually reach $2,000 should not panic and may want to buy more on a correction. A short-term trader should have already been stopped out. Gold should not be purchased alone as an investment asset. Gold itself is speculative and is susceptible for highly volatile moves. That makes it too risky for the average individual investor. Taking all this into account we can say that gold should only be part of a diversified portfolio which includes other commodities (such as oil). While gold we talked about gold as a ”safe haven”, one shouldn’t think about this commodity as an investment only for troubled times. One of the greatest advantages of precious metals exists regardless of economic and market conditions. Therefore, investing in precious metals looks like a good diversification strategy for a portfolio comprised mainly of bonds, stocks and real estate.

Sugar rallied in 2009 amid tight supplies, becoming the top performing commodity in the past six months. Adverse weather conditions damaged crops in Brazil and India, the two largest producers in the world, causing sugar prices to double this year. And how the commodity is going to perform in 2010?

Fundamentals can be considered bullish for the sweetener. Investment funds, limited production in India and a weak dollar are major supporting factors for sugar prices. The commodity also helped by demand for ethanol from Brazil’s flex fuel car fleet.

Global supplies of sugar will remain low for the first half of 2010. The world is using more sweetener than it is producing, causing a deficit for two consecutive years. The global sugar supply deficit is estimated as much as 13.5 million metric tons in the 2009–2010 season. There is some pending dryness in regions including India and Australia, curbing the commodity productions in these countries. On the other side, a favorable weather conditions are expected in Brazil’s Center-South, where increasing production may start to ease the current global deficit.

Beet growers in France and Germany, the two largest producers in the Europe, expect the greatest harvest since 2006. But EU regulations state that farmers may produce no more than 13.3 million metric tons of sugar for food for the domestic market, and surplus beet is considered out-of-quota and turned into export sugar or products such as ethanol. For the foreseeable future the European Commission is not going to authorize the export of out-of-quota sugar in excess of the fixed quantitative limit. Beet harvest of French growers is highest in 50 years, adding to this year’s EU oversupply of 550,000 tons. In case European growers will convince Commission to loose regulation the commodity deficit can be significantly reduce by European sugar.

Considering all factors, the outlook for sugar is rather optimistic. Most analysts agree that next target price for the commodity should be about $0.30. Yet some analysts argue that price as low as $0.13 more realistic. They point that such factors as possibility that mills will produce more sweetener than previously predicted and probability for unloading of funds positions in case if sugar prices will fall may put downward pressure on sugar. Even considering this factors its price is not likely to fall below $0.10. As always caution is advised when dealing with commodities.