Gold may advance for a second day to near one-month high, as data pointing to economic slowdown and prolonged debt turmoil in Greece spurred demand for the metal as a store of value.
Immediate-delivery gold rose as much as 0.3 percent to $1,544.38 an ounce before trading at $1,540.10 at 9:24 a.m. in Singapore. The metal reached $1,550.20 an ounce yesterday, the highest level since May 3. Cash silver strengthened 0.5 percent to $37.04 an ounce.
Manufacturing growth from China to the euro region and the U.S. slowed in May, adding to signs momentum is weakening in the global economy. The Institute for Supply Management’s factory index fell more than projected to 53.5 last month, the lowest level since September 2009, U.S. data showed yesterday.
“Investors bought the safe-haven asset” after signs of economic slowdown in the U.S., Mark Pervan, head of commodity research with ANZ Banking Group Ltd., wrote in a note today. Continued central bank purchases of bullion also provided “additional support and positive sentiment for gold.”
Bullion is extending its 10-year winning streak, as retail investors, pension funds and central bankers seek to protect wealth against Europe’s sovereign-debt crisis, weaker currencies and resurgent inflation.
Russia and Mexico added gold in April now valued at almost $1 billion to their reserves. Russia bought 13.72 metric tons in the month, raising holdings to 824.83 tons, according to data on the International Monetary Fund’s website. Mexico’s assets rose 5.93 tons to 106.14 tons, the data showed this week.
Risk of Default
Greece’s risk of default was raised to 50 percent by Moody’s Investors Service as European officials rushed to put together the second bailout plan in two years to stave off renewed financial turmoil in the region.
Moody’s downgraded Greece to Caa1 from B1, putting it on a par with Cuba, according to a report published late yesterday. The move came after policy makers considered asking investors to reinvest in new Greek debt when existing bonds mature.
An ounce of gold bought 41.5687 ounces of silver today after the ratio jumped 4.8 percent yesterday, the most since May 16. The gold-to-silver ratio fell to as low as 31.7135 on April 28 and rebounded to as high as 44.3310 on May 16.
Spot palladium was little changed at $770.25 an ounce, while platinum was also little changed at $1,819.50 an ounce.
Thursday, 2 June 2011
Thursday, 19 May 2011
Gold May Gain for Second Straight Day on Slowdown, European Debt Concerns
Gold may advance for a second day as further signs of a global economic slowdown and protracted sovereign-debt concerns in Europe spurred demand for precious metals as a store of value.
Immediate-delivery gold traded little changed at $1,497 per ounce at 12:42 p.m. in Singapore after gaining as much as 0.3 percent to $1,500.82. Gold for June delivery in New York was also little changed at $1,497 an ounce, while silver futures jumped as much as 1.8 percent to $35.71 an ounce, extending yesterday’s 4.8 percent advance.
Japan’s economy shrank more than estimated in the first quarter after the March 11 earthquake and tsunami, sending the nation into its third recession in a decade, data showed today. Malaysia’s growth unexpectedly eased last quarter as services and manufacturing moderated, according to data yesterday. The dollar fell for a fourth day, losing 0.3 percent against a basket of six major currencies. Gold typically moves counter to the dollar.
“A weaker dollar is proving the main driver shoring up demand for gold,” said Park Jong Beom, a Seoul-based trader at Tongyang Futures Co. “Lingering concerns over Europe’s debt issues and signs of economic slowdown are also supporting precious metals as a haven asset.”
European Central Bank officials ruled out a Greek debt restructuring, clashing with political leaders over a solution to the crisis. EU finance ministers for the first time this week floated the idea of extending Greece’s debt-repayment schedule as the nation struggles to meet the terms of last year’s 110 billion-euro ($157 billion) rescue.
Decade-Long Rally
Gold strengthened 5.4 percent this year after a 30 percent rally in 2010, keeping it on course for an 11th straight annual advance as investors seek protection against the prospect of currency debasement and accelerating inflation.
Gold and silver may decline next year as governments and central banks raise interest rates and end stimulus measures, Natixis Commodity Markets Ltd. said in an e-mailed report. Gold will average $1,140 an ounce in 2012, while silver will average $19.80, according to yesterday’s report.
Immediate-delivery platinum gained as much as 1.3 percent to $1,792 an ounce and last traded at $1,784, while palladium advanced as much as 0.7 percent to $740.25 an ounce before trading at $736.25.
Immediate-delivery gold traded little changed at $1,497 per ounce at 12:42 p.m. in Singapore after gaining as much as 0.3 percent to $1,500.82. Gold for June delivery in New York was also little changed at $1,497 an ounce, while silver futures jumped as much as 1.8 percent to $35.71 an ounce, extending yesterday’s 4.8 percent advance.
Japan’s economy shrank more than estimated in the first quarter after the March 11 earthquake and tsunami, sending the nation into its third recession in a decade, data showed today. Malaysia’s growth unexpectedly eased last quarter as services and manufacturing moderated, according to data yesterday. The dollar fell for a fourth day, losing 0.3 percent against a basket of six major currencies. Gold typically moves counter to the dollar.
“A weaker dollar is proving the main driver shoring up demand for gold,” said Park Jong Beom, a Seoul-based trader at Tongyang Futures Co. “Lingering concerns over Europe’s debt issues and signs of economic slowdown are also supporting precious metals as a haven asset.”
European Central Bank officials ruled out a Greek debt restructuring, clashing with political leaders over a solution to the crisis. EU finance ministers for the first time this week floated the idea of extending Greece’s debt-repayment schedule as the nation struggles to meet the terms of last year’s 110 billion-euro ($157 billion) rescue.
Decade-Long Rally
Gold strengthened 5.4 percent this year after a 30 percent rally in 2010, keeping it on course for an 11th straight annual advance as investors seek protection against the prospect of currency debasement and accelerating inflation.
Gold and silver may decline next year as governments and central banks raise interest rates and end stimulus measures, Natixis Commodity Markets Ltd. said in an e-mailed report. Gold will average $1,140 an ounce in 2012, while silver will average $19.80, according to yesterday’s report.
Immediate-delivery platinum gained as much as 1.3 percent to $1,792 an ounce and last traded at $1,784, while palladium advanced as much as 0.7 percent to $740.25 an ounce before trading at $736.25.
Malaysia to Plan Global Islamic Dollar Bond
Malaysia is said to be planning a 10- year dollar-denominated Islamic bond, its second sovereign sale of Shariah-compliant debt in a year, four people familiar with the matter said.
The deadline for the request for proposals from bankers has closed and the government has yet to take a final decision, said one of the people, a government official who couldn’t be named as the matter is confidential. Three local investment banks submitted pitches proposing a size of $500 million, which can potentially be raised to $1.7 billion, three of the people said.
An offering of 10-year overseas Islamic debt would set a benchmark for the $1 trillion industry, where issuers tend to favor shorter maturities such as five years or less. The government may be willing to pay a higher yield on the notes than non-Shariah-compliant bonds because it wants to strengthen Malaysia’s position as the global hub for Islamic finance and the biggest market for sukuk, the people said.
“Malaysia’s sovereign bonds have always been sought after because they are rare,” Lum Choon Kuan, head of fixed-income research at CIMB Investment Bank Bhd., a unit of Malaysia’s second-biggest bank, said in a telephone interview in Kuala Lumpur today. Proceeds are likely to be used to part-refinance a $1.75 billion non-Islamic, dollar-denominated bond that matures in July, he said.
Ringgit Sales Surge
The Southeast Asian nation sold $1.25 billion of the five- year dollar-denominated Islamic bonds in May last year at a 180 basis-point premium over U.S. Treasuries. The yield difference has since shrunk to 97 basis points today, approaching a March 31 low of 88 basis points, according to data compiled by Bloomberg.
The yield on the 3.928 percent sukuk maturing in June 2015 was little changed today at 2.45 percent, prices from Royal Bank of Scotland Group show. It reached 2.33 percent on Nov. 4, the lowest since the debt was sold.
Sales of ringgit-denominated Islamic bonds rose 72 percent this year to 12.4 billion ringgit ($4.1 billion) from the same period in 2010, Bloomberg data show. The government has announced a $444 billion 10-year development plan that includes a mass railway in Kuala Lumpur. Malaysia may also sell local- currency sukuk to help finance the construction of the 48 billion ringgit network, Prime Minister Najib Razak said on March 29.
Global sales of sukuk, which pay asset returns to comply with Islam’s ban on interest, climbed to $5.9 billion this year, from $5.4 billion in the same period of 2010, according to data compiled by Bloomberg.
The deadline for the request for proposals from bankers has closed and the government has yet to take a final decision, said one of the people, a government official who couldn’t be named as the matter is confidential. Three local investment banks submitted pitches proposing a size of $500 million, which can potentially be raised to $1.7 billion, three of the people said.
An offering of 10-year overseas Islamic debt would set a benchmark for the $1 trillion industry, where issuers tend to favor shorter maturities such as five years or less. The government may be willing to pay a higher yield on the notes than non-Shariah-compliant bonds because it wants to strengthen Malaysia’s position as the global hub for Islamic finance and the biggest market for sukuk, the people said.
“Malaysia’s sovereign bonds have always been sought after because they are rare,” Lum Choon Kuan, head of fixed-income research at CIMB Investment Bank Bhd., a unit of Malaysia’s second-biggest bank, said in a telephone interview in Kuala Lumpur today. Proceeds are likely to be used to part-refinance a $1.75 billion non-Islamic, dollar-denominated bond that matures in July, he said.
Ringgit Sales Surge
The Southeast Asian nation sold $1.25 billion of the five- year dollar-denominated Islamic bonds in May last year at a 180 basis-point premium over U.S. Treasuries. The yield difference has since shrunk to 97 basis points today, approaching a March 31 low of 88 basis points, according to data compiled by Bloomberg.
The yield on the 3.928 percent sukuk maturing in June 2015 was little changed today at 2.45 percent, prices from Royal Bank of Scotland Group show. It reached 2.33 percent on Nov. 4, the lowest since the debt was sold.
Sales of ringgit-denominated Islamic bonds rose 72 percent this year to 12.4 billion ringgit ($4.1 billion) from the same period in 2010, Bloomberg data show. The government has announced a $444 billion 10-year development plan that includes a mass railway in Kuala Lumpur. Malaysia may also sell local- currency sukuk to help finance the construction of the 48 billion ringgit network, Prime Minister Najib Razak said on March 29.
Global sales of sukuk, which pay asset returns to comply with Islam’s ban on interest, climbed to $5.9 billion this year, from $5.4 billion in the same period of 2010, according to data compiled by Bloomberg.
Wednesday, 11 May 2011
Goldman Sees Commodity Recovery as Slump Erases $99 Billion
The commodities rout that knocked off $99 billion of market value last week is driving out speculators and leading Goldman Sachs Group Inc., which forecast the plunge, to predict a possible recovery.
The combination of slower growth in U.S. service industries and fewer German manufacturing orders helped drive the Standard & Poor’s GSCI Index of 24 commodities down 11 percent in five days, the most since December 2008, and erased all the gains since mid-March. Wheat, zinc and gold rebounded at the end of the week as U.S. payrolls exceeded economists’ forecasts, reducing concern that demand will weaken.
“Given the magnitude of the pullback, it does create an opportunity for more upside potential, particularly in the second half of this year, when fundamentals are expected to tighten,” Jeffrey Currie, the London-based head of commodity research at Goldman, said in a May 6 interview. A month ago, Currie told investors they should be “underweight” in commodities. “In the very near-term, we’d be a little cautious,” he says now.
The value of all 24 commodities tracked by the S&P GSCI index was about $805 billion on May 6, compared with $891 billion on April 29, according to data compiled by Bloomberg on the number of outstanding contracts and prices of futures closest to delivery. Combined holdings of exchange-traded products backed by precious metals fell to $119 billion from $132 billion, the data show.
Investment Funds
Speculators retreated after investment funds had made near- record bets on price gains last month and the S&P GSCI reached the highest since August 2008. Commodities beat stocks, bonds and the dollar for five consecutive months through the end of April, the longest in at least 14 years, on forecasts for demand exceeding output in everything from oil to copper to corn.
The most influential analysts and fund managers are divided on where prices are headed. The last time the S&P GSCI fell this much, the index rebounded 12 percent the following week, and by the end of last month, it had more than doubled.
Bulls say the expanding global economy, led by growth in China, India and Brazil, is boosting demand at a time when producers from BHP Billiton Ltd., the largest mining company, to BP Plc, Europe’s second-biggest oil producer, can’t keep up.
Selling would be “premature,” and the rally will resume, said Hussein Allidina, the head of commodity research at Morgan Stanley in New York, reiterating comments made before the rout. “The decline we are seeing is not being driven by any meaningful change in fundamentals,” he said.
‘Not Turning Point’
“This is not a turning point,” said Kevin Norrish, a London-based managing director at Barclays Capital, whose commodities research team is ranked by Bloomberg in the top three for copper and gold. “We’d expect to see a pretty good recovery from these levels before too long.”
The S&P GSCI climbed 3.6 percent today, as silver futures jumped 5.2 percent and crude oil in New York added 5.5 percent.
Brent crude should rebound about 3 percent to $115 a barrel in coming weeks because violence in northern Africa and the Middle East continues, Christin Tuxen, an analyst at Danske Bank A/S in Copenhagen and the most-accurate oil forecaster tracked by Bloomberg over eight quarters, said on May 6. The fighting already curbed supply from Libya and increased concern that it may spread to regional producers including Saudi Arabia.
JPMorgan Chase & Co. raised its oil-price forecasts for this year and next on May 6 because it expects production to fall short of demand. Brent crude will average $120 in 2011 and 2012, from previous estimates of $110 and $114, the bank said. Oil prices should match or top their recent highs by next year, Goldman said in a note to clients on the same day.
Global Recession
The bears say that even if the economy grows, speculation is so excessive that prices no longer reflect supply and demand. The S&P GSCI Index is 39 percent higher than a year ago and more than twice where it was in February 2009, when economies were recovering from the global recession.
Commodities are at the start of a bear market that may last as long as five to 10 years, said Michael Aronstein, the president of Marketfield Asset Management in New York who correctly predicted the 2008 slump that drove the benchmark index down 66 percent in seven months.
The scale of investment means “supply and demand is almost meaningless,” Aronstein said in an interview May 6. “It’s almost like the last days of the tech bubble.”
Oil, which lost 15 percent last week in New York and 13 percent in London, became “detached from fundamentals,” said Oswald Clint, London-based head oil analyst at Sanford C. Bernstein, the joint-most-accurate oil forecaster tracked by Bloomberg in 2010. Brent could drop below $100 a barrel, he said. That’s about 14 percent lower than now.
Commodity Funds
About $9.61 billion went into commodity funds in the first quarter, more than triple the $2.77 billion a year earlier, EPFR Global, a Cambridge, Massachusetts-based research firm, said in a report in April. Energy funds attracted $10.9 billion, compared with a year-earlier outflow of $367 million.
A rebound in the dollar also dimmed the appeal for commodities that are priced in the U.S. currency. The Dollar Index, a measure against six counterparts, rose 2.6 percent last week, the most since August. The index has a negative correlation of 0.89 to the S&P GSCI Index. A figure of 1 would mean they move in lockstep. The currency gauge may drop to the lowest since July 2008 by the end of the year, estimates compiled by Bloomberg show.
Five-Day Slump
“This is probably the beginning of a bear phase, even if it’s temporary, where the dollar and bonds will be more popular than commodities,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “It’s fitting hand in glove with the U.S. slowdown story.”
The S&P GSCI’s five-day slump, the longest since August, began on May 2 and accelerated on May 5 by plunging 6.5 percent, the most since January 2009.
Silver led the rout after CME Group Inc., the owner of the Comex exchange, increased the cost of making new speculative positions by 84 percent in two weeks. Prices that advanced as much as 61 percent to $49.845 an ounce this year tumbled 27 percent last week to $35.287 on May 6. The metal may drop as low as $30 toward the end of the year before rebounding as gold rallies, said Dan Smith, the London-based analyst at Standard Chartered Plc, which predicted a decline in prices last month.
Gold, Soros
Gold also fell, declining 4.2 percent to $1,491.60 an ounce last week, after the Wall Street Journal reported May 4 that Soros Fund Management LLC, the hedge fund chaired by billionaire investor George Soros, sold some of its precious-metal holdings.
Bullion will advance to a record $1,650 by year-end, partly fueled by central banks buying to diversify their reserves, said Andrew Kaleel, chief executive officer of Sydney-based H3 Global Advisors Pty Ltd., which has a commodity hedge fund managing about A$600 million ($642 million).
Mexico, Russia and Thailand bought about a combined $6 billion of bullion in February and March, International Monetary Fund data show. Since the end of 2009, countries including India, Sri Lanka, Mauritius and Bangladesh have bought metal. Central banks are expanding their gold reserves for the first time in a generation as bullion rises for an 11th consecutive year, the longest winning streak since at least 1920.
The killing of al-Qaeda leader Osama bin Laden may have been the catalyst for this week’s slide in oil, the biggest exchange-traded commodity by value. Crude had surged as much as 25 percent this year as violence swept through northern Africa and the Middle East, disrupting 1.3 million barrels a day from Libya and raising concerns of shortages from the Persian Gulf. Since bin Laden’s death was announced, traders shifted their focus to prospects of weaker demand.
Service Industries
Service industries in the U.S. expanded in April at the slowest pace in eight months, the Institute for Supply Management said May 4. Applications for jobless benefits jumped the most since August in the week ended April 30, the Labor Department said May 5. That was tempered by a report from the department a day later showing payrolls increased last month by the most since May 2010.
Factory orders in Germany, Europe’s largest economy, unexpectedly dropped 4 percent in March, the Economy Ministry said May 5. The country’s industrial production rose for a third time the same month, the ministry said the next day.
Central bankers also helped drive commodities lower last week by indicating their intention to cool growth to combat inflation. Rates rose in more than two-dozen countries this year, according to data compiled by Bloomberg.
‘Extremely Alert’
European Central Bank President Jean-Claude Trichet said May 6 that policy makers are “extremely alert” on inflation after they raised interest rates on April 7, joining China, India, Poland and Sweden in seeking to control consumer prices with tighter monetary policy. Trichet said he may take further decisions on rates after new economic projections in June.
While every commodity tracked by the S&P GSCI fell last week, some rebounded May 6. Wheat futures rose 2 percent on the Kansas City Board of Trade as drought and flooding threatened crops in North America, Europe and Asia. Cocoa, cattle, zinc, gold, copper, nickel and soybeans also gained.
Lower prices also may spur more demand. Barclays, which told investors in a report May 6 to use the slump to buy, is forecasting shortfalls in production this year for copper, nickel, tin, lead, platinum and palladium. Rabobank expects demand to exceed output in corn and cotton, according to a report last month.
‘Strong’ Demand
“Ultimately, supply remains weak, and demand remains strong, and that’s why they will eventually go higher,” said John Stephenson, who helps manage $2.6 billion at First Asset Investment Management Inc. in Toronto. “Commodities, in the worst case, will start firming by late August, but in the meantime, I would see this as a buying opportunity.”
Oil demand will exceed supply this year, the U.S. Energy Department said in a report April 12. Billionaire hedge-fund manager T. Boone Pickens said May 3 that prices will rise.
“If you look at the fourth-quarter projection for oil, that’s 90 million barrels a day globally, and I don’t think the world can produce more than 88 million,” Pickens said in an interview from Los Angeles with Willow Bay and Lisa Murphy on Bloomberg Television’s “Fast Forward.”
For now, funds are probably still trimming bets on higher commodity prices. Net-long positions held by managed-money funds fell 2.4 percent to 1.45 million futures and options in the week ended May 3, Commodity Futures Trading Commission data show. They reached a record 1.56 million contracts in October.
Open interest in 17 of 19 commodities tracked by the Thomson Reuters/Jefferies CRB Index dropped 0.6 percent to 8.15 million contracts, data from the CFTC show. That compares with an all-time high of 8.6 million on Feb. 18.
“I don’t think the commodities boom is over,” said Robbert Van Batenburg, an analyst at Louis Capital Markets in New York, who correctly predicted a 2007 rebound in oil. “We may see a pause in the rally, and that’s OK. Past the summer doldrums, I think the rally picks up where we left off.”
The combination of slower growth in U.S. service industries and fewer German manufacturing orders helped drive the Standard & Poor’s GSCI Index of 24 commodities down 11 percent in five days, the most since December 2008, and erased all the gains since mid-March. Wheat, zinc and gold rebounded at the end of the week as U.S. payrolls exceeded economists’ forecasts, reducing concern that demand will weaken.
“Given the magnitude of the pullback, it does create an opportunity for more upside potential, particularly in the second half of this year, when fundamentals are expected to tighten,” Jeffrey Currie, the London-based head of commodity research at Goldman, said in a May 6 interview. A month ago, Currie told investors they should be “underweight” in commodities. “In the very near-term, we’d be a little cautious,” he says now.
The value of all 24 commodities tracked by the S&P GSCI index was about $805 billion on May 6, compared with $891 billion on April 29, according to data compiled by Bloomberg on the number of outstanding contracts and prices of futures closest to delivery. Combined holdings of exchange-traded products backed by precious metals fell to $119 billion from $132 billion, the data show.
Investment Funds
Speculators retreated after investment funds had made near- record bets on price gains last month and the S&P GSCI reached the highest since August 2008. Commodities beat stocks, bonds and the dollar for five consecutive months through the end of April, the longest in at least 14 years, on forecasts for demand exceeding output in everything from oil to copper to corn.
The most influential analysts and fund managers are divided on where prices are headed. The last time the S&P GSCI fell this much, the index rebounded 12 percent the following week, and by the end of last month, it had more than doubled.
Bulls say the expanding global economy, led by growth in China, India and Brazil, is boosting demand at a time when producers from BHP Billiton Ltd., the largest mining company, to BP Plc, Europe’s second-biggest oil producer, can’t keep up.
Selling would be “premature,” and the rally will resume, said Hussein Allidina, the head of commodity research at Morgan Stanley in New York, reiterating comments made before the rout. “The decline we are seeing is not being driven by any meaningful change in fundamentals,” he said.
‘Not Turning Point’
“This is not a turning point,” said Kevin Norrish, a London-based managing director at Barclays Capital, whose commodities research team is ranked by Bloomberg in the top three for copper and gold. “We’d expect to see a pretty good recovery from these levels before too long.”
The S&P GSCI climbed 3.6 percent today, as silver futures jumped 5.2 percent and crude oil in New York added 5.5 percent.
Brent crude should rebound about 3 percent to $115 a barrel in coming weeks because violence in northern Africa and the Middle East continues, Christin Tuxen, an analyst at Danske Bank A/S in Copenhagen and the most-accurate oil forecaster tracked by Bloomberg over eight quarters, said on May 6. The fighting already curbed supply from Libya and increased concern that it may spread to regional producers including Saudi Arabia.
JPMorgan Chase & Co. raised its oil-price forecasts for this year and next on May 6 because it expects production to fall short of demand. Brent crude will average $120 in 2011 and 2012, from previous estimates of $110 and $114, the bank said. Oil prices should match or top their recent highs by next year, Goldman said in a note to clients on the same day.
Global Recession
The bears say that even if the economy grows, speculation is so excessive that prices no longer reflect supply and demand. The S&P GSCI Index is 39 percent higher than a year ago and more than twice where it was in February 2009, when economies were recovering from the global recession.
Commodities are at the start of a bear market that may last as long as five to 10 years, said Michael Aronstein, the president of Marketfield Asset Management in New York who correctly predicted the 2008 slump that drove the benchmark index down 66 percent in seven months.
The scale of investment means “supply and demand is almost meaningless,” Aronstein said in an interview May 6. “It’s almost like the last days of the tech bubble.”
Oil, which lost 15 percent last week in New York and 13 percent in London, became “detached from fundamentals,” said Oswald Clint, London-based head oil analyst at Sanford C. Bernstein, the joint-most-accurate oil forecaster tracked by Bloomberg in 2010. Brent could drop below $100 a barrel, he said. That’s about 14 percent lower than now.
Commodity Funds
About $9.61 billion went into commodity funds in the first quarter, more than triple the $2.77 billion a year earlier, EPFR Global, a Cambridge, Massachusetts-based research firm, said in a report in April. Energy funds attracted $10.9 billion, compared with a year-earlier outflow of $367 million.
A rebound in the dollar also dimmed the appeal for commodities that are priced in the U.S. currency. The Dollar Index, a measure against six counterparts, rose 2.6 percent last week, the most since August. The index has a negative correlation of 0.89 to the S&P GSCI Index. A figure of 1 would mean they move in lockstep. The currency gauge may drop to the lowest since July 2008 by the end of the year, estimates compiled by Bloomberg show.
Five-Day Slump
“This is probably the beginning of a bear phase, even if it’s temporary, where the dollar and bonds will be more popular than commodities,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “It’s fitting hand in glove with the U.S. slowdown story.”
The S&P GSCI’s five-day slump, the longest since August, began on May 2 and accelerated on May 5 by plunging 6.5 percent, the most since January 2009.
Silver led the rout after CME Group Inc., the owner of the Comex exchange, increased the cost of making new speculative positions by 84 percent in two weeks. Prices that advanced as much as 61 percent to $49.845 an ounce this year tumbled 27 percent last week to $35.287 on May 6. The metal may drop as low as $30 toward the end of the year before rebounding as gold rallies, said Dan Smith, the London-based analyst at Standard Chartered Plc, which predicted a decline in prices last month.
Gold, Soros
Gold also fell, declining 4.2 percent to $1,491.60 an ounce last week, after the Wall Street Journal reported May 4 that Soros Fund Management LLC, the hedge fund chaired by billionaire investor George Soros, sold some of its precious-metal holdings.
Bullion will advance to a record $1,650 by year-end, partly fueled by central banks buying to diversify their reserves, said Andrew Kaleel, chief executive officer of Sydney-based H3 Global Advisors Pty Ltd., which has a commodity hedge fund managing about A$600 million ($642 million).
Mexico, Russia and Thailand bought about a combined $6 billion of bullion in February and March, International Monetary Fund data show. Since the end of 2009, countries including India, Sri Lanka, Mauritius and Bangladesh have bought metal. Central banks are expanding their gold reserves for the first time in a generation as bullion rises for an 11th consecutive year, the longest winning streak since at least 1920.
The killing of al-Qaeda leader Osama bin Laden may have been the catalyst for this week’s slide in oil, the biggest exchange-traded commodity by value. Crude had surged as much as 25 percent this year as violence swept through northern Africa and the Middle East, disrupting 1.3 million barrels a day from Libya and raising concerns of shortages from the Persian Gulf. Since bin Laden’s death was announced, traders shifted their focus to prospects of weaker demand.
Service Industries
Service industries in the U.S. expanded in April at the slowest pace in eight months, the Institute for Supply Management said May 4. Applications for jobless benefits jumped the most since August in the week ended April 30, the Labor Department said May 5. That was tempered by a report from the department a day later showing payrolls increased last month by the most since May 2010.
Factory orders in Germany, Europe’s largest economy, unexpectedly dropped 4 percent in March, the Economy Ministry said May 5. The country’s industrial production rose for a third time the same month, the ministry said the next day.
Central bankers also helped drive commodities lower last week by indicating their intention to cool growth to combat inflation. Rates rose in more than two-dozen countries this year, according to data compiled by Bloomberg.
‘Extremely Alert’
European Central Bank President Jean-Claude Trichet said May 6 that policy makers are “extremely alert” on inflation after they raised interest rates on April 7, joining China, India, Poland and Sweden in seeking to control consumer prices with tighter monetary policy. Trichet said he may take further decisions on rates after new economic projections in June.
While every commodity tracked by the S&P GSCI fell last week, some rebounded May 6. Wheat futures rose 2 percent on the Kansas City Board of Trade as drought and flooding threatened crops in North America, Europe and Asia. Cocoa, cattle, zinc, gold, copper, nickel and soybeans also gained.
Lower prices also may spur more demand. Barclays, which told investors in a report May 6 to use the slump to buy, is forecasting shortfalls in production this year for copper, nickel, tin, lead, platinum and palladium. Rabobank expects demand to exceed output in corn and cotton, according to a report last month.
‘Strong’ Demand
“Ultimately, supply remains weak, and demand remains strong, and that’s why they will eventually go higher,” said John Stephenson, who helps manage $2.6 billion at First Asset Investment Management Inc. in Toronto. “Commodities, in the worst case, will start firming by late August, but in the meantime, I would see this as a buying opportunity.”
Oil demand will exceed supply this year, the U.S. Energy Department said in a report April 12. Billionaire hedge-fund manager T. Boone Pickens said May 3 that prices will rise.
“If you look at the fourth-quarter projection for oil, that’s 90 million barrels a day globally, and I don’t think the world can produce more than 88 million,” Pickens said in an interview from Los Angeles with Willow Bay and Lisa Murphy on Bloomberg Television’s “Fast Forward.”
For now, funds are probably still trimming bets on higher commodity prices. Net-long positions held by managed-money funds fell 2.4 percent to 1.45 million futures and options in the week ended May 3, Commodity Futures Trading Commission data show. They reached a record 1.56 million contracts in October.
Open interest in 17 of 19 commodities tracked by the Thomson Reuters/Jefferies CRB Index dropped 0.6 percent to 8.15 million contracts, data from the CFTC show. That compares with an all-time high of 8.6 million on Feb. 18.
“I don’t think the commodities boom is over,” said Robbert Van Batenburg, an analyst at Louis Capital Markets in New York, who correctly predicted a 2007 rebound in oil. “We may see a pause in the rally, and that’s OK. Past the summer doldrums, I think the rally picks up where we left off.”
China’s Commodity Deals Dropping
China, the world’s biggest user of natural resources, is pulling back from commodities and energy acquisitions as the rest of the world pursues deals at the fastest pace since the financial crisis.
China’s companies have spent $14.2 billion on acquisitions this year, down 30 percent from the same period last year, according to data compiled by Bloomberg. Worldwide the value of takeovers in the industry is $176 billion, the most at this time of the year since 2007. U.S. companies from Alpha Natural Resources Inc. (ANR) to DuPont Co. are the largest buyers.
After China snapped up assets from a stake in Repsol YPF SA (REP)’s Brazilian unit to Ugandan fields from Tullow Oil Plc (TLW), political unrest in countries such as Egypt and Libya helped push up commodity prices this year. The rebound led Glencore International AG to offer shares this month in the year’s biggest initial public offering, which may value the commodity trader at about $61 billion.
“Faced with strict regulatory control over Chinese acquisitions in the U.S. and other countries, Chinese companies have been shifting targets,” said Guan Anping, a professor at the People’s University of China in Beijing and a former Chinese trade official. “The turmoil in North Africa and Middle East highlighted the risks of resources investment in the region. Chief executives of state-owned enterprises became very cautious.”
Lubrizol, Danisco
U.S. buyers lead acquisitions this year, with the biggest deal coming from Warren Buffett’s Berkshire Hathaway Inc. (BRK/A)’s $9.2 billion takeover of lubricant maker Lubrizol Corp. (LZ) Mine owner Massey Energy Co. (MEE) agreed in January to an $8.3 billion buyout from Alpha Natural Resources Inc. DuPont last month raised its bid for Danish food-ingredients maker Danisco A/S to $6.4 billion.
Morgan Stanley (MS) has advised on 16 deals valued at $55 billion so far this year, the most among investment banks. Goldman Sachs Inc. comes second at $46 billion, and Credit Suisse has advised on $35 billion in transactions.
China lost the contest for Equinox Resources Ltd. last month, with Toronto-based Barrick Gold Corp. (ABX)’s C$7.3 billion ($7.6 billion) bid trumping Minmetals Resources Ltd. (1208)’s C$6.3 billion offer.
Most Expensive
The takeover was the most expensive copper mining acquisition, according to data compiled by Bloomberg. The battle came as China’s currency fell 2.8 percent against the Canadian dollar over the past six months. It reached a two-year low of 6.8681 yuan to the so-called loonie on April 29, and traded at 6.7889 as of 11:05 a.m. in Hong Kong today. Against the euro, the yuan has dropped 3.2 percent in the past six months.
“China is still pursuing acquisitions, but they are not the only game in town anymore,” said Richard Horrocks-Taylor, head of mining investment banking at RBC Capital Markets in London. “Chinese acquirers have become more sophisticated and more thorough in their assessment before they make an offer.”
In mining, China had already retreated last year, making acquisitions worth $4.5 billion compared with $10 billion in 2009, according to Ernst & Young LLP.
Valuations on mining and energy companies have gone up after crude oil jumped 43 percent in the past year to more than $110 a barrel in London and copper advanced 24 percent. The Standard & Poor’s GSCI Total Return Index of 24 commodities has beaten bonds, stocks and the dollar every month since December, the longest run in at least 14 years.
Baar, Switzerland-based Glencore’s IPO will set benchmarks for assets as it raises funds in London and Hong Kong, said Christine Tiscareno, an equity analyst at Standard & Poor’s.
Commodities Prices
“Prices are at the peak,” Tiscareno said. “China is very shrewd to take a back seat until they see what happens with Glencore. Even though they can afford to pay up and they need the resources, prices are likely to come down.”
Commodities tumbled last week on concern the global economy may slow. The S&P commodities index slid more than 10 percent, and crude oil declined more than 12 percent. Copper fell to the lowest price in almost five months last week on concern that higher interest rates will lead to slower growth and inflation.
China faces political opposition to some deals. Australia blocked a $2.8 billion bid by state-owned China Minmetals Corp. for OZ Minerals Ltd. (OZL) in March 2009 on national security concerns. Australia also helped stymie Aluminum Corp. of China’s planned $19.5 billion investment in Rio Tinto Group.
Political Barriers
“Political barriers raised by Western countries have frustrated Chinese in overseas takeovers,” said Heng Kun, an analyst with Essence Securities Co. in Beijing. “But that’s unlikely to deter their expansion plans in the long run. China will continue to seek iron ore, oil, copper, uranium and minor metals that are in domestic short supplies.”
China will build 10 cities larger than New York by 2025 and will need to import more steel, iron ore, coal, aluminum and copper, Rio Tinto’s Chief Economist Vivek Tulpule said last year. The nation will almost triple its annual use of copper to 20 million tons in 25 years, according to CRU, a London-based metals and mining consulting company, prompting companies to seek control of mines oversees.
“China has a longer-term strategic imperative to secure sources of future supply for commodities,” said Ric Ronge, who helps manage the equivalent of $1.3 billion at Pengana Global Resources Fund in Melbourne. “They will keep buying.”
China’s companies have spent $14.2 billion on acquisitions this year, down 30 percent from the same period last year, according to data compiled by Bloomberg. Worldwide the value of takeovers in the industry is $176 billion, the most at this time of the year since 2007. U.S. companies from Alpha Natural Resources Inc. (ANR) to DuPont Co. are the largest buyers.
After China snapped up assets from a stake in Repsol YPF SA (REP)’s Brazilian unit to Ugandan fields from Tullow Oil Plc (TLW), political unrest in countries such as Egypt and Libya helped push up commodity prices this year. The rebound led Glencore International AG to offer shares this month in the year’s biggest initial public offering, which may value the commodity trader at about $61 billion.
“Faced with strict regulatory control over Chinese acquisitions in the U.S. and other countries, Chinese companies have been shifting targets,” said Guan Anping, a professor at the People’s University of China in Beijing and a former Chinese trade official. “The turmoil in North Africa and Middle East highlighted the risks of resources investment in the region. Chief executives of state-owned enterprises became very cautious.”
Lubrizol, Danisco
U.S. buyers lead acquisitions this year, with the biggest deal coming from Warren Buffett’s Berkshire Hathaway Inc. (BRK/A)’s $9.2 billion takeover of lubricant maker Lubrizol Corp. (LZ) Mine owner Massey Energy Co. (MEE) agreed in January to an $8.3 billion buyout from Alpha Natural Resources Inc. DuPont last month raised its bid for Danish food-ingredients maker Danisco A/S to $6.4 billion.
Morgan Stanley (MS) has advised on 16 deals valued at $55 billion so far this year, the most among investment banks. Goldman Sachs Inc. comes second at $46 billion, and Credit Suisse has advised on $35 billion in transactions.
China lost the contest for Equinox Resources Ltd. last month, with Toronto-based Barrick Gold Corp. (ABX)’s C$7.3 billion ($7.6 billion) bid trumping Minmetals Resources Ltd. (1208)’s C$6.3 billion offer.
Most Expensive
The takeover was the most expensive copper mining acquisition, according to data compiled by Bloomberg. The battle came as China’s currency fell 2.8 percent against the Canadian dollar over the past six months. It reached a two-year low of 6.8681 yuan to the so-called loonie on April 29, and traded at 6.7889 as of 11:05 a.m. in Hong Kong today. Against the euro, the yuan has dropped 3.2 percent in the past six months.
“China is still pursuing acquisitions, but they are not the only game in town anymore,” said Richard Horrocks-Taylor, head of mining investment banking at RBC Capital Markets in London. “Chinese acquirers have become more sophisticated and more thorough in their assessment before they make an offer.”
In mining, China had already retreated last year, making acquisitions worth $4.5 billion compared with $10 billion in 2009, according to Ernst & Young LLP.
Valuations on mining and energy companies have gone up after crude oil jumped 43 percent in the past year to more than $110 a barrel in London and copper advanced 24 percent. The Standard & Poor’s GSCI Total Return Index of 24 commodities has beaten bonds, stocks and the dollar every month since December, the longest run in at least 14 years.
Baar, Switzerland-based Glencore’s IPO will set benchmarks for assets as it raises funds in London and Hong Kong, said Christine Tiscareno, an equity analyst at Standard & Poor’s.
Commodities Prices
“Prices are at the peak,” Tiscareno said. “China is very shrewd to take a back seat until they see what happens with Glencore. Even though they can afford to pay up and they need the resources, prices are likely to come down.”
Commodities tumbled last week on concern the global economy may slow. The S&P commodities index slid more than 10 percent, and crude oil declined more than 12 percent. Copper fell to the lowest price in almost five months last week on concern that higher interest rates will lead to slower growth and inflation.
China faces political opposition to some deals. Australia blocked a $2.8 billion bid by state-owned China Minmetals Corp. for OZ Minerals Ltd. (OZL) in March 2009 on national security concerns. Australia also helped stymie Aluminum Corp. of China’s planned $19.5 billion investment in Rio Tinto Group.
Political Barriers
“Political barriers raised by Western countries have frustrated Chinese in overseas takeovers,” said Heng Kun, an analyst with Essence Securities Co. in Beijing. “But that’s unlikely to deter their expansion plans in the long run. China will continue to seek iron ore, oil, copper, uranium and minor metals that are in domestic short supplies.”
China will build 10 cities larger than New York by 2025 and will need to import more steel, iron ore, coal, aluminum and copper, Rio Tinto’s Chief Economist Vivek Tulpule said last year. The nation will almost triple its annual use of copper to 20 million tons in 25 years, according to CRU, a London-based metals and mining consulting company, prompting companies to seek control of mines oversees.
“China has a longer-term strategic imperative to secure sources of future supply for commodities,” said Ric Ronge, who helps manage the equivalent of $1.3 billion at Pengana Global Resources Fund in Melbourne. “They will keep buying.”
Gold, Silver Extend Advance on China’s Inflation, European Debt Concerns
Gold and silver extended their advance as faster-than-forecast inflation in China and a resurgence of Europe’s sovereign-debt crisis increased demand for precious metals as a store of value.
Immediate-delivery gold gained as much as 0.5 percent to $1,523.82 per ounce, climbing for a fourth day after last week’s 4.4 percent slump, and traded at $1,522.95 at 11:05 a.m. in Singapore. Silver futures, which shed 27 percent last week, increased as much as 1.9 percent to $39.20 an ounce.
China’s consumer prices rose 5.3 percent in April from a year earlier, data showed today, exceeding the government’s full-year target for a fourth month. The gain was more than the 5.2 percent median forecast in a Bloomberg survey of 30 economists and compared with a 5.4 percent increase in March.
“Higher-than-expected inflation readings out of China might even result in some medium-term support for precious metals,” Marc Ground, an analyst at Standard Bank Plc, wrote in a note before the figure was released at 10 a.m. in Beijing.
The government aims for full-year inflation of 4 percent as Premier Wen Jiabao eyes the risk that rising prices for basic goods and housing will fan social discontent. Inflation is “the most pressing problem” facing China, Vice Premier Wang Qishan said at talks in Washington this week.
“Signs of continued pressures might see the market’s preoccupation with rising global inflation resurface, and consequently see some inflation-hedge demand,” wrote Ground.
Weaker Dollar
Gold, which reached a record $1,577.57 an ounce on May 2, may climb to $2,000 by January, according to Deutsche Bank AG. Investors including George Soros invested in gold as the metal surged over the past year on Europe’s sovereign-debt crisis, a weakening dollar and quickening inflation.
Standard & Poor’s this week downgraded Greece’s credit rating for the fourth time since April 2010, signaling that the region’s debt crisis is escalating. Demand for precious metals also grew as the dollar declined 0.4 percent this week against six major currencies, halting a 2.6 percent advance last week.
“With the resurfacing of euro-zone sovereign-debt concerns, we expect to see continued appetite for gold and silver,” Ground wrote. “Given the recent selloff, expect to see a return of investor as well as physical buying in search of value.”
UBS AG said its so-called physical gold sales yesterday were the second-highest this year, with above-average demand from India, the largest gold consumer. India’s inflation index rose 8.98 percent in March from a year ago, data showed on April 15, exceeding the central bank’s 8 percent estimate.
“Without necessarily expecting this very high pace of buying to continue, we nonetheless would look for Indian demand to continue at above-average levels, given how willing these buyers have lately been at prices in excess of $1,500,” UBS analyst Edel Tully wrote in an e-mailed report yesterday.
Immediate-delivery palladium increased 0.7 percent to $735.25 an ounce, while platinum gained 0.2 percent to $1,801.25. Spot silver gained as much as 1.8 percent to $39.2075 per ounce, and traded at $39.1475
Immediate-delivery gold gained as much as 0.5 percent to $1,523.82 per ounce, climbing for a fourth day after last week’s 4.4 percent slump, and traded at $1,522.95 at 11:05 a.m. in Singapore. Silver futures, which shed 27 percent last week, increased as much as 1.9 percent to $39.20 an ounce.
China’s consumer prices rose 5.3 percent in April from a year earlier, data showed today, exceeding the government’s full-year target for a fourth month. The gain was more than the 5.2 percent median forecast in a Bloomberg survey of 30 economists and compared with a 5.4 percent increase in March.
“Higher-than-expected inflation readings out of China might even result in some medium-term support for precious metals,” Marc Ground, an analyst at Standard Bank Plc, wrote in a note before the figure was released at 10 a.m. in Beijing.
The government aims for full-year inflation of 4 percent as Premier Wen Jiabao eyes the risk that rising prices for basic goods and housing will fan social discontent. Inflation is “the most pressing problem” facing China, Vice Premier Wang Qishan said at talks in Washington this week.
“Signs of continued pressures might see the market’s preoccupation with rising global inflation resurface, and consequently see some inflation-hedge demand,” wrote Ground.
Weaker Dollar
Gold, which reached a record $1,577.57 an ounce on May 2, may climb to $2,000 by January, according to Deutsche Bank AG. Investors including George Soros invested in gold as the metal surged over the past year on Europe’s sovereign-debt crisis, a weakening dollar and quickening inflation.
Standard & Poor’s this week downgraded Greece’s credit rating for the fourth time since April 2010, signaling that the region’s debt crisis is escalating. Demand for precious metals also grew as the dollar declined 0.4 percent this week against six major currencies, halting a 2.6 percent advance last week.
“With the resurfacing of euro-zone sovereign-debt concerns, we expect to see continued appetite for gold and silver,” Ground wrote. “Given the recent selloff, expect to see a return of investor as well as physical buying in search of value.”
UBS AG said its so-called physical gold sales yesterday were the second-highest this year, with above-average demand from India, the largest gold consumer. India’s inflation index rose 8.98 percent in March from a year ago, data showed on April 15, exceeding the central bank’s 8 percent estimate.
“Without necessarily expecting this very high pace of buying to continue, we nonetheless would look for Indian demand to continue at above-average levels, given how willing these buyers have lately been at prices in excess of $1,500,” UBS analyst Edel Tully wrote in an e-mailed report yesterday.
Immediate-delivery palladium increased 0.7 percent to $735.25 an ounce, while platinum gained 0.2 percent to $1,801.25. Spot silver gained as much as 1.8 percent to $39.2075 per ounce, and traded at $39.1475
Monday, 9 May 2011
Silver Futures Rally From Worst Weekly Loss Since 1975 as Investors Return
Silver futures rebounded from the worst weekly slump since at least 1975 on speculation investors will return to commodity markets as concerns over the global recovery eased and the dollar weakened. Gold also gained.
Silver for July delivery jumped as much as 2.9 percent to $36.31 an ounce after plunging 27 percent last week, while cash silver added as much as 1.9 percent to $36.3175. Immediate- delivery gold rose 0.4 percent to $1,501.65 an ounce at 2:07 p.m. in Singapore. The metal rallied 1.4 percent on May 6, paring last week’s loss to 4.4 percent.
The Standard & Poor’s GSCI Index of 24 commodities declined 11 percent last week, the most since December 2008, led by the tumble in silver futures. The dollar fell as much as 0.5 percent against six major currencies today.
“Gold and silver may regain strength as traders perceive last week’s commodities washout to be excessive and it isn’t viewed as a trend reversal,” said Park Jong Beom, Seoul-based trader with Tongyang Futures Co. “There’s no change in the outlook for a weaker dollar as well.”
The value of all 24 commodities tracked by the S&P GSCI index was about $805 billion on May 6, compared with $891 billion on April 29, according to data compiled by Bloomberg on the number of outstanding contracts and prices of futures closest to delivery. Combined holdings of exchange-traded products backed by precious metals fell to $119 billion from $132 billion, the data show.
American Jobs
American employers added more jobs than forecast in April and previous monthly gains this year were revised up, easing concern the economy is cooling. Payrolls expanded by 244,000 last month, the biggest gain since May 2010, after a revised 221,000 increase the prior month, the Labor Department said on May 6 in Washington.
“We see no reason to panic about recent price declines,” Monty Guild, chief executive officer at Guild Investment Management Inc., wrote in a note last week. “Nothing has changed, except for the fact that some highly-leveraged speculators have been forced to sell. After the panic has ended, buying opportunities at low prices will abound.”
Net-long positions of commodities held by managed-money funds fell 2.4 percent to 1.45 million futures and options in the week ended May 3, Commodity Futures Trading Commission data show. They reached a record 1.56 million contracts in October.
Immediate delivery palladium strengthened 0.3 percent to $723 an ounce, while platinum added 0.5 percent to $1,794.50 an ounce.
Silver for July delivery jumped as much as 2.9 percent to $36.31 an ounce after plunging 27 percent last week, while cash silver added as much as 1.9 percent to $36.3175. Immediate- delivery gold rose 0.4 percent to $1,501.65 an ounce at 2:07 p.m. in Singapore. The metal rallied 1.4 percent on May 6, paring last week’s loss to 4.4 percent.
The Standard & Poor’s GSCI Index of 24 commodities declined 11 percent last week, the most since December 2008, led by the tumble in silver futures. The dollar fell as much as 0.5 percent against six major currencies today.
“Gold and silver may regain strength as traders perceive last week’s commodities washout to be excessive and it isn’t viewed as a trend reversal,” said Park Jong Beom, Seoul-based trader with Tongyang Futures Co. “There’s no change in the outlook for a weaker dollar as well.”
The value of all 24 commodities tracked by the S&P GSCI index was about $805 billion on May 6, compared with $891 billion on April 29, according to data compiled by Bloomberg on the number of outstanding contracts and prices of futures closest to delivery. Combined holdings of exchange-traded products backed by precious metals fell to $119 billion from $132 billion, the data show.
American Jobs
American employers added more jobs than forecast in April and previous monthly gains this year were revised up, easing concern the economy is cooling. Payrolls expanded by 244,000 last month, the biggest gain since May 2010, after a revised 221,000 increase the prior month, the Labor Department said on May 6 in Washington.
“We see no reason to panic about recent price declines,” Monty Guild, chief executive officer at Guild Investment Management Inc., wrote in a note last week. “Nothing has changed, except for the fact that some highly-leveraged speculators have been forced to sell. After the panic has ended, buying opportunities at low prices will abound.”
Net-long positions of commodities held by managed-money funds fell 2.4 percent to 1.45 million futures and options in the week ended May 3, Commodity Futures Trading Commission data show. They reached a record 1.56 million contracts in October.
Immediate delivery palladium strengthened 0.3 percent to $723 an ounce, while platinum added 0.5 percent to $1,794.50 an ounce.
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