A Raw Q2 for Commodities but Gold is Good
Singapore. Commodities posted a weak end to the first half of 2010, with many markets showing first quarterly losses in 18 months, under pressure from a toxic mix of risk aversion, equity losses and debt worries.
Industrial raw materials — oil and base metals — have seen the biggest reversal of fortune, with crude sliding about 9 percent, its first fall since the end of 2008 when the market tanked up to 6 percent in the throes of the global economic crisis.
Zinc’s fall of 25 percent was the metal’s second quarterly drop since the end of 2008, and its biggest decline since then. Copper and aluminum had their first losses since the end of 2008.
However, gold rose for a seventh quarter running and its near 12 percent rise in the past three months is its strongest performance in two and a half years.
“This is a pretty miserable end to the first half, but in base metals I am of a view that prices are close to bottoming,” said Ben Westmore, an economist from the National Australia Bank. But he added that he did not expect a quick rebound.
Instead industrial metals were expected to consolidate for a couple of months and prices to push higher in the fourth quarter.
On the other hand, Jim Rogers, the chairman of Singapore-based Rogers Holdings, said “I’m short stocks and long commodities. If the world economy gets better, commodities are going to be the place to be because shortages are developing. If the world economy doesn’t get better, commodities are still a better place to be than stocks.”
Three-month copper on the London Metal Exchange gained $6 to $6,500 a metric ton, after hitting a one-week low of $6,465 in the previous session.
Disappointing US consumer confidence, concerns about European bank financing and an indicator of slower growth to come from China led to a broad retreat in commodities in the previous session. The Reuters-Jefferies CRB index fell 6 percent this quarter and is 9.6 percent down year to date.
US crude for August tumbled on Wednesday to just more than $75 a barrel. Prices have declined almost 10 percent from the end of March, the first quarterly drop since the October-December period in 2008. Still, in early May, US crude hit a 19-month high above $87.
“I am very bearish on Europe,” said Clarence Chu, an energy trader at Hudson Capital Energy in Singapore. “The market just wants to get higher and then there is bad news and it comes down again. The premium for Hurricane Alex has evaporated, so I wouldn’t be surprised if prices come back down. It could get really close to the $75 support level.”
Gold gained after holdings in the world’s largest bullion-backed ETF hit another record as investors rushed for safety from tumbling stock markets. Spot gold rose $3.65 to $1,241.65 an ounce after volatile trade on Tuesday when it dropped toward $1,220 before bouncing to around $1,241. Gold struck a record near $1,265 an ounce last week.
“In gold, these sorts of prices can be sustained, there is nothing at these levels that make it look too frothy. In the second half I think we’ll see growing jewelry demand and that will offset a slowdown in investment,” NAB’s Westmore said.
US corn futures lifted off nine-month lows in light trade on Wednesday — corn prices have struggled all year as prospects for a huge US corn harvest more than offset China’s most-active corn buying in 15 years and expected record corn consumption for ethanol production.
Chicago Board of Trade corn for July delivery rose 0.38 percent to $3.26 per bushel on little volume and prices are on track for a 4.7 percent quarterly loss.