Commodities: Industrial metals surge, precious and oil weaker - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, notes that the gold has fallen sharply towards pre-Brexit vote lows as the sharp rise in bond yields reduces the appeal of low-yielding gold as an alternative store of value and the broad strength in the USD has also weighed on Gold.

Key Quotes

“Other commodity prices are exhibiting a range of factors.  Developments in China include production cuts for iron ore and coal this year to consolidate inefficient over-capacity and address pollution, a recovery in demand led by ongoing rapid infrastructure spending and a recovery in the property market, and easy liquidity conditions that appear to be contributing to excessive speculation on commodity futures exchanges.  As a result coal and iron ore have seen remarkable rebounds this year.”

“The Trump election may have provided some more positive impetus to steel prices and steel-making commodities (iron ore and coking coal).  Even though the anti-trade rhetoric may limit the prospects for Chinese steel exports, if overall more steel is required, the price of these commodities should rise.”

“Hopes for more infrastructure spending also sent other base metals sharply higher, including copper and aluminum.  However, copper futures spiked on Friday before closing lower, a sign that the initial Trump euphoria may have peaked.”

“While industrial metals prices have surged, energy prices have resumed their recent decline over the last month to be at the lower end of their range since mid-year.”

“Oil prices are the most important for global inflation, and the recent fall places some doubt that the market has stabilized from its over two-decade lows seen early this year.  The recovery in oil prices since the beginning of the year has helped to lift from low levels inflation expectations, but there still appears to be significant excess supply that might keep prices capped for the foreseeable future.”

“The immediate focus is on the 30 November OPEC meeting where its members are supposed to ratify an agreement to cap production.  There is considerable doubt that a deal will be reached or be adhered to.”

“The USA has been a big swing factor over recent years contributing to the rise in production and collapse in prices since 2014.  The fall in US production was a factor helping prices recover this year.  However, its production has increased in the last month, responding to a lift in oil rigs in operation since a low in May.”

“The Trump election may also have contributed to weaker energy prices.  He is a climate denier and has campaigned to remove restrictions on energy exploration, production, and exports.  On the other hand, his pro-energy sector policies have helped underpin US energy sector company share prices. Nevertheless weaker energy prices may act as a counter-weight on the recent surge in global yields that have had significant broader implications for currency markets.”