Confusing times for commodities.
The US dollar, the main driver in recent months as it has weakened, seems to be trying to find a floor against major currencies and rebounding. It hit a five week high on Friday before easing, allowing oil, gold and other commodities to edge higher as they were also affected by supply demand questions, such as more attacks in Nigeria and rising exports of US wheat.
But dealers are now wondering if the dollar will now move doggedly higher: it has already recovered solidly from the all time low of $US1.6016 reached against the euro late last month and closed around $US1.5424 in New York Friday night, our time. The Aussie dollar though, maintained its value, closing just under 93.50 USc.
Gold seems to be the commodity picked out as the object for selling by investors as the dollar moves higher.
It had its third consecutive weekly drop last week, the longest losing streak in a year.
While gold has risen 27% in a year as the dollar has declined 13% against the euro, there’s been a noticeable reversal of sentiment in the last three weeks.
Even before the Fed met, cut rates 0.25% and left faint hints that was it for the time being, traders had been pushing the greenback higher and selling commodities.
That’s linked to the rising confidence about equities, and financial investors seem to be switching out of commodities and back into shares and from bonds into shares, judging by the way US bond yields seem to rising. Yields on 10 year bonds hit 3.85% on Friday in New York, the highest for some time.
June Comex gold futures rose $US7.10, or 0.8%, to $US858 an ounce on Friday, still down 3.6% over the week.
Spot gold fell as low as $US845 an ounce after the dollar jumped following better-than-expected US jobs data, but the price bounced after the price dipped below $US850 an ounce.
It was the first three week losing streak since the three weeks ended May 25, 2007.
Spot gold in London rose $US1.85 to $US854.54 an ounce in late trading on Friday, a weekly decline also of 3.6%. The metal is trading 17% below the record $US1032.70 reached on March 17, as the Fed and JP Morgan were in the process of rescuing Bear Stearns.
The stuttering recovery in the US dollar will have to be watched: it could unhinge commodity markets at the same time as equities continue to recover. Anyone caught long in commodities might be embarrassed
But for oil, there are plenty of factors that will give the biggest commodity market of all a kick along, besides movements in the value of the US dollar.
Friday saw oil rise more than $US3 a barrel in New York, the most in month, after the April jobs report showed that the US lost fewer jobs than forecast last month and Turkey renewed its military offensive against Kurdish rebels in Iraq.
And to give things a bit of pep in oil today, there were reports of more attacks in Nigeria over the weekend against oil producing facilities.
Shell said it had shut down more of its production in Nigeria after a fresh attack on Saturday on a flowstation in the Niger Delta, where local militants have stepped up a campaign of violence.
The bombing of the Shell facilities in Nigeria’s southern Bayelsa state was the fifth attack in just over a month, and the third in a week. Last week Exxon facilities were targeted. It will make sure oil remains around Friday’s close of $US116.30, just when it was looking overbought and ready to fall below $US110 a barrel.
Some traders said the better than forecast loss of 20,000 jobs and lower jobless rate of 5% in April were bull points for oil: but the figures were a bit rubbery, depending on estimates of new jobs created in new businesses. Hours worked, overtime and wages all did poorly and were better indicators of the poor health of the US employment market.
Oil touched a record $US119.93 a barrel on April 28, as the dollar dropped. That drop has reversed: the question is how far will it rise?
Among the softs, US corn fell from a record on speculation that plantings had accelerated after good weather set in across corn growing regions of the Midwest.
As of April 27, 10% had been planted in the top 18 producing states, below the average of 35%, according to the US Department of Agriculture estimates. There will be a further update on plantings this week from the department.
July corn futures eased 3.75c to $US6.135 a bushell on the Chicago Board of Trade after earlier extending this year’s 35% rise to a record $US6.2425. The price rose 3.9% over the week.
American farmers said in a USDA survey in March that they would plant 8.1% less corn this year than last year’s record but plantings would still be the second highest on record. However the wet weather and delays could see them switch to soybeans where plantings are forecast to rise 18%.
Chicago wheat rose for the first time in four days on a rise in the level of exports.
Wheat hit a new six month low on Thursday of $US7.765 a bushell. The USDA reported that wheat export sales rose 12% in the week ended April 24 from the previous week to be up 41% in the year since last June.
With prices around six month lows there are reports of growing buying interest from aboard.
And that means higher prices. Friday saw July wheat futures up 9c or 2.4% to $8.09 a bushell on the Chicago Board of Trade. That trimmed the week’s fall to 0.4%; the fourth weekly fall in a row. Wheat prices are off 40% from the peak of $US13.495 a bushell reached on February 27. Rice prices were also easier in Asia late in the week.
New York copper jumped 3.4% on Fri
