Commodity Blog

Posts Tagged ‘Federal Reserve’

Crude oil climbed today as the dollar fell. The drop of the greenback was caused by a testimony of Federal Reserve Chairman Ben Bernanke. Bernanke suggested that the US jobs market is weaker than the recent very positive data indicated.

Today, the US Energy Department boosted its forecast for crude oil prices to $100.40 per barrel this year, compared to the January estimate of $100.25 per barrel. Analysts expect tomorrow’s report to show an increase by 2.9 million barrels of US inventories of crude last week, while growth was 4.2 million in the week before.

March futures for delivery of crude oil gained as much as $1.50 to $98.41 per barrel on NYMEX.

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.

Soybeans and rubber declined today as macroeconomic data from the United States showed decreasing number of new home sales and increasing number of unemployment claims. Claims for unemployment benefits rose from 356,000 to 377,000 last week. New homes sales were at a seasonally adjusted rate of 307,000 in December, compared to the median forecast of 321,000 and the November value of 314,000.

Yesterday, soybeans advanced as the pledge of the US Federal Reserve to keep interest rate record low till 2014 was supporting commodities. The Standard & Poor’s GSCI Spot Index of 24 commodities added 1.5 percent yesterday.

Futures for delivery of rubber in July went down to 316.4 yen per kilogram ($4,087 per metric ton) before trading at 317.3 yen on the Tokyo Commodity Exchange. Soybeans fell from $12.2175 to $12.1825 per bushel as of 6:31 GMT on CBoT after reaching the highest price since January 3 of $12.3500 yesterday.

Crude oil and gold, as well as other commodities, jumped after the Federal Reserve maintained interest rates near zero and pledged to keep borrowing costs record low at least till late 2014. Such move was considered a ”light” version of quantitative easing. It weakened the dollar and boosted commodities priced in the US currency. March for delivery of crude oil advanced $0.66 to $100.06 per barrel on NYMEX. Brent went higher from $110.45 to $110.74 per barrel on ICE today as of 6:41 GMT. Gold was up from $1,666.50 to $1,711.00 yesterday and traded at $1,710.80 today on COMEX.

Wheat was also higher on dwindling Russian stocks. Inventories of some Russian regions declined by more than 50 percent, while other regions shipped almost all of their supplies as exports picked up. Wheat climbed from $6.4075 to $6.4650 per bushel on CBoT today.

Gold was a stellar performer in 2010 and traders entered 2011 extremely bullish on gold. Some experts were talking about $3,000 and even $5,000 per troy ounce. Indeed, the metal reached a new record high last year, even though it wasn’t gaining as fast as most optimistic forecasters predicted. Yet the end of 2011 left market participants disappointed as gold dropped sharply and had hard time recovering from the loss. Many traders wonder: is there any reason to remain bullish on the precious metal?

The short answer is “yes”. The long answer: most market analysts name a several reasons to be optimistic about gold, but they remain more cautious than at the beginning of the last year. They name several reasons to be bullish on gold: attempts of developed nations to devaluate their currencies and physical demand from Asia. The United States is perhaps the major contributor to optimism for the precious metal as its low interest rates and a possible next round of quantitative easing add to inflationary pressure to the upside for gold. Central banks across the world also stepped in, boosting their gold reserves to diversify from the US currency.

What about downside factors for gold? There is one most important threat for the commodity: Europe. It may look strange at first as the European debt crisis should add to safe-haven attractiveness of gold, but one needs just to recall 2008, when all commodities were tumbling, even precious metals. A serious crisis can be negative for gold and the problems of Europe look serious enough.

Mark Leibovit, editor of the VRTrader newsletter, said in December:

We might hit bottom in a month or so. How far it might go depends on how the technicals unfold. Short-term it’s held the September lows of $1,531. But we have to see it perform in both time and price to confirm it. What might it take do so? We’d need to see the equity market improve, Europe improve, and maybe a QE3.

That outlines the major factors for gold. In case the Federal Reserve would embark on a new round of easing and Europe would emerge from its crisis relatively unscathed, the precious metal will jump to new records. Consequently, gold is in danger in scenario where the USA would recover without additional stimulus, while the eurozone woes would strengthen. If anything, such scenario would boost the dollar, hitting prices for all commodities, gold included. Unfortunately for gold bulls, such scenario is quite possible as America shows signs of recovery, reducing need for stimulus, while European politicians lack courage to make bold moves for saving the European Union from its credit crunch.

Most analysts remain optimistic for gold, though less bold in promising new records. They believe that the metal will reach $2,000 per ounce in 2012, but it won’t move in a straight line and strong corrections can be expected. The worst case scenario may push gold to $1,270, but it’s not likely to go lower, at least not in 2012. In fact, forecasters thought that gold would be weak at the beginning of this year, but for now the precious metal proves to be more resilient than it was given credit for.

Gold attempted to rally yesterday, but failed. The Federal Reserve refrained from adding stimulus during its monetary policy meeting on December 13. The decision was bad for gold as the QE3 would result in a weaker dollar that could boost the precious metal. Much of the previous strength of gold was derived from the continuous attempts of the developed nations to weaken their currencies.

The dollar was still weaker yesterday as the fundamental reports from the United States were good for the most part and gold attempted to profit from that. Alas, without much success. The good fundamentals are a mixed blessing for the yellow metal. Good macroeconomic data results in less demand for a safe haven, leading to a weaker dollar, but also less need for gold as a refuge.

Gold opened at $1,571.50 per ounce, rallied to $1,592.80 and closed at $1,573.40 on COMEX.

Commodities, including crude oil and corn, gained today as prospects for the US and European economies improved, making traders more willing to invest into riskier assets.

The speculation about recapitalization of the European Union banks and hopes that the European Central Bank would support the region’s economy reduced concerns about the debt crisis in Europe.

The sentiment about the economy of the United States improved after Federal Reserve Chairman Ben Bernanke signaled about possible implementation of another round of stimulating measures. The outlook for the American economy further improved after the ADP employment report showed the growth by 91,000 working places, compared to the median forecast of 76,000. The non-farm payrolls will be released on October 7 and economists think they will show an increase by 51,000 jobs. Employment was the major concern for the US policy makers for a long time and improvement of this sector is definitely a good sign.

Crude oil also gained as the US inventories decreased by 4.7 million barrels to 336.3 million barrels last week instead of rising by 1.0 million as was expected.

Futures for delivery of corn in December gained $0.1225 (2.1 percent) to $6 per bushel as of 10:22 on CBoT. November futures for delivery of crude oil jumped as much as $3.54 (4.7 percent) to $79.21 per barrel by 13:42 on NYMEX.

Following a deep 3-day fall caused by the liquidity crisis combined with the global risk aversion, oil is now rising for the second day in a row. The commodity recovered to above Thursday’s open close level and last Wednesday’s high.

Although the extent of the recovery is impressive — more than 4.5 percent from the yesterday’s low, the reasons for this growth aren’t. Oil gained along with the rest of the commodities and stocks inspired by the speculations regarding the Greek debt crisis. After the US Federal Reserve refused to pour extra money into the world’s financial system, it’s now ECB‘s turn to raise or ruin the markets. If the European officials come to an agreement and the eurozone’s central bank will have its hands untied to provide more help (print more money) for the troubled states, the crude oil will be among the most benefiting assets.

While many analysts believe that it’s a viable reason to bet on oil (among the other oversold commodities), some warn the market participants about the possibility of the unfavorable outcome of the events. If Greece has to declare a real default or if some of the eurozone’s members will have to leave the union, the catastrophe for oil may be even worse than the 2008 financial crisis fall.

Brent oil blend went up from $104.63 to $106.27 per barrel on the spot market as of 17:50 GMT today. A monthly low of $101.66 was reached yesterday for this energy commodity.

Silver continued its biggest downward rally since May 2011, following the decline of the liquidity in the markets and the increased risk-aversion expressed even against the ”safe commodities.” The intraday low set today is the minimum level since November 2010.

The whole metals market can be described with a phrase “extremely bearish.” While previously the fall in the industrial metals would mean an uptrend in the precious metals, the recent trading sessions show that all metals can fall simultaneously and to do it very well. Although some analysts say that silver is falling because the investors have to close their position to cover the expanding stock market losses, silver has its own reasons to fall.

Last Friday, CME announced an increase of the margin requirements for the futures trading in silver. These new requirements take effect today. While the Federal Reserve is concerned with the stagnation in the economic recovery, there will be no new quantitative easing round, which means that the banks will have less cash to speculate on the gold/silver market.

Silver fell from $30.75 to $30.01 per troy ounce on the spot market as of 17:23 GMT today, following a drop to as low as $26.11/ounce during the early trading session. It lost more than 24% since Wednesday.

Agricultural commodities declined today as the negative effect of yesterday’s monetary policy statement of the US Federal Reserve continued to affect markets today. The Fed announced its plan to replace the short-term securities with the longer-maturity debt and spoke about the ”significant downside risks” for the US economy. China’s Purchasing Managers’ Index fell to 49.4 in September from 49.7 in August, reinforcing the pessimistic sentiment among traders.

The Standard & Poor’s GSCI Index slumped as much as 5.2 percent. Silver, copper and crude oil were the major contributors to the decline. The Thomson Reuters/Jefferies CRB Index of slid 4.4 percent to the lowest level in nine months.

December contract for delivery of corn slipped $0.3575 (5.2 percent) to $6.50 per bushel by 13:15 on CBoT, the biggest decline since October 1. November futures for delivery of soybean fell $0.375 (2.8 percent) to $12.83 per bushel, following the drop to $12.81, the lowest price since March 15. Futures for delivery of wheat in December dropped $0.33 (4.9 percent) to $6.3375 per bushel, the biggest fall since June 30.