Gold
Gold rose to its highest on June 7, as investors bought the metal as a haven amid concerns over the health of the European banking system. Spot gold hit a high of $1,259.80 an ounce against $1,249.55 late in New York on June 6. US gold futures for December delivery rose $7.70 to $1,258.80. Gold denominated in euros also climbed to a two-month peak at 987.92 euros an ounce, while strength in the yellow metal lifted silver to 2-½-year highs at $20.00 an ounce.
Risk aversion prevailed on the wider markets, with equities slipping and the dollar climbing after a Wall Street Journal report said Europe’s recent “stress tests” of major banks underestimated some lenders holdings of potentially risky government debt.Demand for gold was steady in Asia, however, as the festival season gets underway in India. Gold is widely offered as gifts in religious celebrations and weddings in the country, which accounts for 20 per cent of global demand for jewellery.
Among other precious metals, platinum was at $1,551.73 an ounce against $1,555.90,while palladium was at $526 against $523.83. Both have benefited from expectations for a recovery in auto catalyst demand –the biggest segment of consumption – though gains in palladium have outstripped those of platinum.
Gold could challenge its lifetime high of around $1,264 an ounce touched in June as the outlook for the global economy remained murky and demand from jewellers steady during the festive season in main consumer India. Demand in India rises during the festive season, which begins with Raksha Bandhan in August and lasts through November with Dhanteras – the single-biggest gold buying day.
The world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings slipped to 1,294.442 tonnes by September 3 from 1,294.908 tonnes on September 2. The holdings surged to a record 1,320.436 tonnes on June 29.
Silver was barely changed at $19.83 an ounce after rising as high as $19.92 on June 6, matching a peak seen on September 3 – the metal’s highest level since March 2008.
Some physical dealers said the recent gains were driven by speculators, who took advantage of silver’s cheap price compared to other precious metals, and not by purchases from the industrial sector.
The Nikkei slipped on June 7, hit by profit-taking after four straight days of large gains.
Investors are keen to see how Wall Street reacts to U.S. President Barack Obama’s infrastructure plan proposal. To spur job creation, Obama proposed a six-year plan to rebuild U.S. infrastructure with an initial $50 billion investment and prepared new business tax cuts.
The euro slid from a three-week peak against the dollar hit the previous day, as rekindled worries about the European banking sector prompted investors to cut risks. Fears that the euro debt crisis would spread and the US economy was slowing sent gold to a record high in June.
Gold has hit records twice already in 2010, scoring its current peak of $1,264.90 in June as the euro zone sovereign debt crisis sparked flights to safety. Investors worried that monetary loosening would ultimately prove inflationary.
The metal’s latest swing higher after a retracement in June and July has improved its technical picture. Commerzbank gold’s bounce off this week’s low at $1,210 was positive, with $1,250 targeted before the June high. Barclays Capital projects $1,350 and higher later this year. Spot gold is currently near 8-week highs of $1,244 an ounce. Significantly, gold is also rising in non-dollar terms.
Euro-priced gold, which hit an all-time high above 1,050 euros an ounce in June, rose back above 980 euros again last week for the first time since July 1. Sterling-priced gold has also risen back above 800 pounds an ounce. This rally has the benefit of coming at a time when more optimism is emerging about the jewellry market, which has come under heavy pressure in recent years from high prices.
According to the World Gold Council, global jewellery demand in the first half of 2010 was 16 per cent higher than the same period of 2009 despite a 24 per cent rise in US dollar prices.
Demand from China is also set to rise as the country moves toward liberalizing its gold market. China is the world’s second-largest gold consumer, but as it is also the world’s biggest miner, much of its trade has historically been domestic. However, demand is so great that it can outstrip domestic output by 100 tons a year.
Supply is limited. While miners are likely to try and raise output to capitalize on rising prices, this will be slow. Selling by central banks has tailed off sharply in recent years as gold’s appeal as a reserve asset increases, while scrap gold supply has failed to match the peaks of early 2009.
But while tight supply and return of physical demand is set to add further fuel to gold’s rally, it is investment that will provide the real swing factor for gold.
Oil
In the London market oil fell by over $1 to near $73 a barrel on June 7 as the dollar strengthened and Tropical Storm Hermine showed no signs of disruption to crude or refining output as it came ashore near the Mexico Texas border.
The dollar was up 0.7 per cent against a basket of currencies. A strong dollar can weigh on oil as it makes crude more expensive for other currency holders. European stocks fell and Wall Street was expected to open lower.
U.S. crude fell $1.55 a barrel to $73.05. Brent crude was down 82 cents from June 6 close to $76.05. There was no settlement price for U.S. crude on June 6 because of the Labor Day holiday.
Brent remained at an atypical premium to U.S. crude as brimming U.S. inventories weighed on the U.S. benchmark. Physical crude markets in Europe are relatively strong in part because of a tight export programme for Russian crude Urals.
The Atlantic hurricane season runs from June 1 through November 30 and is at its peak period. Traders watch out for storms because the Gulf is home to about 30 per cent of U.S. oil output and more than 43 per cent of refinery capacity.
Oil fell more than $1 to below $74 a barrel as renewed concerns about the health of the European banking sector raised further doubts about the ongoing economic recovery and the outlook for energy demand.
But an explosion at a major oil refinery in Mexico saw prices rise off their lows on expectations Mexico will have to import more oil products from the United States and other trading partners in the coming months.
US crude fell $1.01 a barrel to $73.59 at 1714 GMT, but was more than $1 above earlier low of $72.63. Brent crude was up 29 cents from September 6 close of $77.17.
Barclays Capital (BARC.L), one of the most bullish banks on the oil market outlook in recent years, has cut its oil price forecasts for 2011 and this year, citing concern about the economy. The bank cut it 2010 price forecast for benchmark U.S. crude Clc1 by $4 a barrel to $78 and reduced its 2011 forecast by $7 to $85, it said in a report.
Other forecasters have been trimming their price outlooks in the face of rising oil inventories, which are at a record high in top consumer the United States – and concern about the strength of economic recovery and future demand.
U.S. crude was expected to average $78.63 in 2010 and $83.84 in 2011, the poll of 31 analysts, banks and government agencies showed. The price has averaged around $76 so far this year.
In the report Barclays cut its third-quarter 2010 price forecast by $8 to $76 and reduced the fourth-quarter prediction by $9 to $78. Barclays’ previous 2011 forecast of $92 was more than $8 above the consensus in the poll.
Copper
In the London market, copper prices fell on June 7 down from a four month high reached a week earlier, as investors sold off riskier assets such as commodities on the back of renewed concerns about the European banking sector.
Benchmark copper for three-month delivery on the London Metal Exchange closed at $7,629 a tonne, down from $7,705 at the close on June 6 but having bounced from a session low at $7,496.25.
On June 3, copper hit a four-month high of $7,750, as investors bet on improved demand following better-than-forecast jobs data in the United States, the world’s largest economy.
Analysts and traders bet metal prices would be resilient.
China is in the process of cutting production of metals produced in polluting and energy-intensive processes, said investment bank Fairfax in a note. The could cause key metals prices to rise while demand growth continues. Inventory levels are also seen as a good demand indicator.
Latest LME data showed that on June 6, copper stocks slipped 1,400 tonnes to 395,475 tonnes, having fallen from 6-½ year highs at 555,075 tonnes in mid-February.
Aluminium was last bid at $2,164 versus a last bid at $2,193 on June 6. LME stocks for the metal, used in transport and packaging, fell 4,575 tonnes to remain near record levels at 4.41 million tones. A large portion of those aluminium stocks are tied up in finance deals.Support for metals could come as U.S. President Barack Obama pledged a $50 billion
road, rail and runway infrastructure programme as a means to boost employment. He also proposed to let firms write off 100 per cent of their spending on plant and equipment.
Analysts said upward pressure on some base metals may come from a renewed push for energy efficiency in China a leading base metals consumer and producer. Latest LME data showed that on June 6, copper stocks slipped 1,400 tonnes to 395,475 tonnes, havingfallen from 6-½ year highs at 555,075 tonnes in mid-February.