Further Price Pressures on Commodities

By Glenn Dyer | More Articles by Glenn Dyer

The midyear commodities boom has been well and truly pricked as prices of key products like oil, gold, silver, copper and iron ore continue to weaken.

Prices slid ahead of the release of US Consumer price Inflation data for July on Wednesday – a solid 4% annual reading for the month will see traders bet on an early end by the US Federal Reserve to its bond buying and bring forward forecasts for a rate rise to early 2022.

That speculation as well as the rise in Covid Delta infections across the globe and especially in Asia and in particular, China, saw commodity prices wobble for a second session in a row.

Oil and gold again took the brunt of the market nervousness. Oil prices fell over 2% to a three-week low on Monday and gold slumped sharply.

The slide started last Friday and continued in the Asian session on Monday and then trailed into Europe and then the US.

Wall Street ended weaker – the Dow and S&P 500 ended in the red while the Nasdaq saw a small gain.

But commodities took the brunt of the negativity. Gold prices settled lower at $US1,73 an ounce in New York on Monday in early Asian dealings on Tuesday morning – a fall of 1.8%. Gold touched an intraday low of $US1,672 an ounce in volatile trading.

Silver lost near 4% to end around $US23,40. It hit a low of $US22.75 announce. Comex copper did better but still shed 1.3% to around $US4.29 an ounce in early Asian trading.

Oil built on last week’s steep losses on the back as a stronger US dollar and concerns grew that new coronavirus-related clamps in Asia, especially China, will slow the global economy and the improving demand, especially for jet fuel.

A United Nations panel’s warning on on the worsening outlook for climate change added to the gloomy mood after fires in Greece and Turkey destroyed homes and forests and parts of Europe suffered deadly floods last month.

Bad flooding hit China’s Henan province last month and now the same region is one of the centres of the new outbreak of Covid Delta that has spread across the country to Beijing where parts of the capital remain in lock down or restricted movement.

Brent futures fell $US1.66, or 2.4%, to settle at $US69.04 a barrel, while in New York. West Texas Intermediate (WTI) crude lost $US1.80, or 2.6%, to settle at $US66.48.

Those were the lowest closes for both benchmarks since July 19. In intraday trade, WTI fell to its lowest level since May. Brent and WTI both lost between 6% and 7% last week alone.

“Crude prices are declining as a slowdown in Asia disrupts the demand outlook,” said Edward Moya, senior market analyst at OANDA, noting “a stronger dollar theme is (also) starting to emerge given the recovery story in the United States and that might be a short-term drag for crude prices.”

Wall Street banks Goldman Sachs, JPMorgan and Morgan Stanley all cut their China growth forecasts on Monday, after export growth in July slowed and on concerns that the resurgent Delta variant of the coronavirus will hit economic activity.

Iron ore prices traded was muted because of holidays in Singapore and Japan. They ended last week around $$US172.51 a tonne for 62% fe fines delivered to northern China.

The US dollar continued last week’s rise, pushing the Aussie currency down to around 73.25 US cents – the loss of around 0.30 of a cent. US bond yields ended around 1.33% on the growing belief that the Fed will start tapering at its next meeting in mid-September and raise rates next year.


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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