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What could possibly cause several different kinds of commodities – from oil to gold to silver – to drop at the same time? It’s not a normal dip. The factors that create bounces in cotton prices usually don’t influence, say, gold. But experts say it’s not apocalypse now. It’s not even apocalypse soon. The simple reason for the dip in commodities prices, these experts say, is that we have too much of a good thing: too much gold; a bumper crop of corn; a glut of iron ore
This embarrassment of riches is what commodity producers thought they wanted. They spent the past several years investing in infrastructure and technology to produce more goods, getting more barrels of oil, more ounces of gold, or more bushels per acre, said Rob Haworth, senior investment strategist for US Bank Wealth Management. Commodity producers pushed more production in the hope that they would meet strong demand from emerging markets like China, where citizens bought homes, bought iPhones and cars, and created booming 7% economic growth every year.
That’s not how it worked out, however. Asia and Europe are suffering from weaker economies – in some cases, flirting with new recessions in Japan and the Eurozone – which, in turn, means that demand for all of that oil and gold and iron is dropping. “The market has to absorb both [weak demand and high supply] at the same time,” said US Bank’s Haworth. “With either one, we would have seen somewhat weaker prices; with both the market is really having to adjust.” That lack of demand is why the commodity markets aren’t forecasting bad times in the future; they’re mirroring the current dark “mood” of the commodity investor, said analysts at Citi Research in a research note from 16 November.
Both Haworth and O’Neill said the gold market reflects the lack of inflation seen globally, even as central banks like the Bank of Japan and the European Central Bank are loosening their policies and thinking of pouring more stimulus into their economies. One reason Haworth said he’s not worried about a bigger global recession is the behavior of copper prices. US copper futures prices have dipped below $3 a pound on rare occasions in 2014, but it’s always bounced back up. Haworth called that “heartening” and suggests copper prices are suggesting that while global growth is not strong, it’s not falling apart.
Read More- theguardian.com
This embarrassment of riches is what commodity producers thought they wanted. They spent the past several years investing in infrastructure and technology to produce more goods, getting more barrels of oil, more ounces of gold, or more bushels per acre, said Rob Haworth, senior investment strategist for US Bank Wealth Management. Commodity producers pushed more production in the hope that they would meet strong demand from emerging markets like China, where citizens bought homes, bought iPhones and cars, and created booming 7% economic growth every year.
That’s not how it worked out, however. Asia and Europe are suffering from weaker economies – in some cases, flirting with new recessions in Japan and the Eurozone – which, in turn, means that demand for all of that oil and gold and iron is dropping. “The market has to absorb both [weak demand and high supply] at the same time,” said US Bank’s Haworth. “With either one, we would have seen somewhat weaker prices; with both the market is really having to adjust.” That lack of demand is why the commodity markets aren’t forecasting bad times in the future; they’re mirroring the current dark “mood” of the commodity investor, said analysts at Citi Research in a research note from 16 November.
Both Haworth and O’Neill said the gold market reflects the lack of inflation seen globally, even as central banks like the Bank of Japan and the European Central Bank are loosening their policies and thinking of pouring more stimulus into their economies. One reason Haworth said he’s not worried about a bigger global recession is the behavior of copper prices. US copper futures prices have dipped below $3 a pound on rare occasions in 2014, but it’s always bounced back up. Haworth called that “heartening” and suggests copper prices are suggesting that while global growth is not strong, it’s not falling apart.
Read More- theguardian.com
