Commodity Blog

Posts Tagged ‘economic growth’

Commodities rallied as Federal Reserve Chairman Ben Bernanke said yesterday that he expects the US economy to grow with faster pace this year. Gold joined the rally and was further boosted by prospects for quantitative easing if such outlook would prove to be wrong.

Bernanke explained how external influences, like the earthquake in Japan and Europe’s crisis, hurt the US economy in 2011, but added:

Fortunately, over the past few months, indicators of spending, production, and job market activity have shown some signs of improvement; and, in economic projections just released, Federal Open Market Committee (FOMC) participants indicated that they expect somewhat stronger growth this year than in 2011.

Positive performance of the US economy isn’t guaranteed, though, as Chairman explained:

The outlook remains uncertain, however, and close monitoring of economic developments will remain necessary.

Such comments leave place for additional stimulus that may be beneficial for gold prices.

The economic situation in the United States is balance in a unique way as both improvement and deteriorating of the economy may prove positive for the precious metal. Prices for gold reflected that by climbing by 11 percent in January.

Gold traded at $1,756.70 as of 4:23 GMT today on COMEX after jumping from $1,745.10 to $1,759.50 yesterday.

Oil fell as China’s manufacturing decline. The HSBC/Markit China Manufacturing PMI fell from 49.0 to 48.7 in December. A value below 50.0 indicates contraction. Europe also continued to hurt commodities. February futures for delivery of crude oil fell $0.82 to $98.83 per barrel on NYMEX. Brent fell from $108.04 to $107.76 per barrel on ICE.

Copper performed better on hopes that the US economic growth would outweigh the problems in Europe and the slowdown in China. The US PMI is expected to post a positive reading next week. The US economy grew 1.8 percent this year and analysts predict that it’ll expand 2.1 percent in 2011. Copper advanced from $3.4220 to $3.4315 per pound on COMEX.

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.

The slump of silver in September left traders wondering if the precious metal lost all bullishness that was so apparent at the beginning of the year. It’s truth that the metal shows a tremendous volatility, yet bulls haven’t lost all hopes yet.

The credit problems in Europe can potentially increase demand for silver as a precious metal. The recovery in the US also isn’t certain. The attempts of central banks across the world to weaken currencies of their nations made commodities, and precious metal in particular, preferred assets for safer investment.

The role of silver as an industrial metal also isn’t forgotten. While the economic problems in the Western nations may prove negative for the metal, the robust economic growth in Asia provides a strong demand. China, the biggest consumer of the white metal among emerging markets, shows especially strong growth. The growth slowed somewhat at present, but that’s not completely bad as a slower rate of expansion decreases probability of a government’s intervention to cool the overheating economy.

Spot price for silver was at $30.73 per ounce today as of 3:35 GMT on COMEX, following the drop from $32.05 to $31.22 yesterday. The price slumped from $39.80 to $30.56 in the huger four-day drop in September. After the decline the price stabilized near $31.85.

The global economic turmoil and uncertainty about the recovery reduce appeal of commodities to traders. Copper, like most other industrial metals, dropped on the mounting signs of a slower recovery.

China’s gross domestic product expanded 9.1 percent in the third quarter from a year ago, showing the slowest pace of growth since 2009. The conditions for New York manufacturers worsened as was shown by the Empire State Manufacturing Index that was at -8.5 in October. The ZEW Indicator of Economic Sentiment for Germany declined to -48.3 in October from -43.3 in the previous month.

December futures for delivery of copper fell 0.5 percent to $3.36 per pound by 13:21 on COMEX. The prices have declined 26 percent in the three months ended September 30, posting the biggest quarterly drop since the end of 2008.

The recent plunge of zinc may come to an end on the signs of increasing demand and declining supply.

Zinc was falling in three of the last four years on the London Metal Exchange, showing the worst performance among the six major industrial metals. The slowdown of the global economy contributed to the decline. Another reason for the bad performance was overproduction of the metal.

But market analysts began to view zinc in more favorable light. The rapid economic growth in Asia, particularly China, increase demand for industrial metals. Production of rust-proof steel reached the record high of 31.7 million metric tons in the second quarter of this year, according to estimates of Macquarie Group. About 50 percent of zinc is used to produce the alloy. Morgan Stanley predicted the expected production surplus of 270,000 metric tons in 2011 would fall to 130,000 in 2012. Experts forecast supply to drop as prices fell below production costs of some mines.

There are reasons to be optimistic for zinc, but also there are reasons to be cautious. The world economic recovery is encountering problems and may even falter, at least according to forecasts of most pessimistic economists. Such worries aren’t good for industrial metals. The International Monetary Fund cut its global growth forecasts to 4 percent for 2011 and 2011, compared to the previous estimates of 4.3 percent and 4.5 percent respectively.

Zinc rose today from $94.60 to $95.10 per kilogram on MCX, following the previous advance to the daily high of $96.10.

Crude oil today gained 1 percent, retreated 0.8 percent and later fluctuated. Crude gained as US reserves declined by 4.0 million barrels to 353.1 million last week, while analysts predicted a decline by 1.9 million. Oil lost its gains on speculation that the global economic growth is faltering. October contract for delivery of crude oil fell $0.07 to $89.27 per barrel by 12:13 on NYMEX, while today’s price range was from $88.59 to $90.23.

The same concerns that hurt oil boosted gold. Worries about economic recovery intensified after US jobless claim climbed from 412,000 to 414,000 last, while they were expected to go down to 407,000. Today’s speech of European Central Bank President Jean-Claude Trichet, after the central bank kept the target interest rate unchanged at 1.5 percent, were rather pessimistic and spurred the speculation the ECB is going to cut borrowing costs in the near future. Futures for delivery of gold in December rose $39.90 (2.2 percent) to $1,857.50 as of 14:18 on COMEX. The problems in Europe allowed the precious metal to advance 31 percent in 2011.

Copper fell as prospects for the global growth worsened. Economics and Business Research predicted that growth of the global economy will slow to 3 percent in 2011 down from 4.2 percent in 2010. December futures for delivery of copper slipped $0.008 (0.2 percent) to $4.1095 per pound by 13:12 on COMEX. The metal declined 8.3 percent this month.

Oil, on the other hand, preferred to react to good news, rising after personal consumption in the US increased. Spending of the US citizens rose 0.8 percent in July, following the drop by 0.1 percent in June. The report of the Energy Department tomorrow is expected to show that inventories of gasoline decline, while stockpiles of crude grew. October contract for delivery of crude oil gained $0.45 to $87.72 per barrel in electronic trading on NYMEX.

The crude oil is falling for the 6th day on the spot market now, weakened by the poor prospects for the US economic growth. In addition, today’s drop is the biggest one since June 23.

The main factor for the oil’s decline, by the words of the market experts, is the low outlook for the US economy. The government’s measures to cut the budget spending and the potential credit rating downgrades, albeit not very probable, — they all press heavily in the industrial commodities, of which oil is the most volatile one.

In addition, the crude oil inventories continued to grow in the United States. As the today’s report shows, the commercial reserves of this commodity has reached 355 million barrels.

The spot price for Brent blend of oil decreased from $116.18 to $112.99 per barrel as of 19:20 GMT today. The lowest daily level was at 112.79 — the price minimum since July 6.

Crude dropped after the International Energy Agency announced that it’s going to release the strategic reserves and on the speculation that demand from the US, the biggest user, will decline. The agency stated that it” release 2 million barrels per day for 30 days, starting next week. The prospect of increasing output from Saudi Arabia also contributed to the decline of crude.

The signs of slower economic growth in the US suggest about potential decline of demand for fuel. The jobless claims rose from 326,000 to 319,000 last week. The Federal Reserve decreased its growth forecast for this year to 2.7—2.9 percent this year, compared to April’s forecasts of 3.1—3.3 percent growth.

August contract for crude oil delivery fell by $4.30 to $91.11 per barrel in electronic trading on NYMEX. August Brent crude slipped $4.40 (3.9 percent) to $109.81 per barrel on ICE.