Normally it’s a profitable trade: buy commodities or derivatives based on them, and when the US dollar weakens, watch commodity prices rise as the greenback sells off.
But that normally lucrative trade has not been as reliable in the past couple of weeks, and on Friday it fell apart, especially in gold and copper.
The euro rose on Friday to its highest level in two months, topping $US1.30 at one stage and the greenback also hit a low for the year versus the Japanese yen.
Despite the greenback’s weakness, gold fell heavily, losing $US20 an ounce in New York to end at $US1188 an ounce, an eight week low.
Oil also eased on worries about the weakening US economy and copper shed 8.25 USc a pound to finish in New York at just over $US2.92 a pound.
That was a two week low for the red metal.
The US dollar is slipping now due to easing concerns about a banking crisis in Europe, coupled with fears about growth in the US slowing, with prices dipping towards deflationary levels.
With the yen at a 2010 high, Japanese companies, especially exporters, are worrying that their exports will be priced out of markets.
China, Japan’s biggest market, is slowing.
China has become the fastest growing destination for German exports and the sharp 9% rise in the value of the euro in the past two weeks will threaten that boom if the current strength is sustained.
The euro has risen from a four-year low of $US1.1875 on June 7.
The results of bank stress tests being conducted in the European Union will be released later this week.
They are expected to be favourable and that will push the euro higher if it turns out to be the case.
In the gold market, futures prices fell sharply as investors hit a reality wall of soft US consumer price pressures and falling confidence.
The various surveys on prices and on industrial production confirm there’s enormous slack in the US economy, which continues to pressure prices lower.
Comex August gold futures lost $US20.10, or 1.7%, to $US1,188.20 an ounce and the lowest settlement price since May 21.
Gold lost 1.8% on the week, its third weekly loss in four weeks. Silver lost 1.6% on the week.
The settlement below $US1,190 brought gold to the bottom of its recent trading range. Gold has traded sideways for the past two weeks.
September silver fell 57c, or 3.1%, to $US17.78 an ounce.
And in oil a similar tale, although the loss wasn’t as large.
But oil prices end lower on Friday with Nymex WTI down 61c at $US76.01 a barrel.
London’s Brent North Sea crude for September fell 82 USc to finish at $US75.37.
The closes again confirmed that oil is range bound and not going anywhere as buyers wonder about easing demand from the US and now possibly China (although oil imports into China are rising strongly).
And here’s some news that will upset the copper market.
Refined copper output in China hit an all-time record high in June as smelters profitably worked near full steam.
China said refined output rose 6% on the month in June to 422,000 tonnes.
That was up 26.3% on a year ago and surpassed the previous record 420,700 tonnes seen last November.
China’s refined copper production accounts for about 80% of actual domestic consumption expected for this year, with the remainder met by imports.
Chinese refined copper prices have dropped by 11% so far this year as moves to cool the economy and the housing sector in particular, have hit demand.
This could explain why China has cut its import needs in the past couple of months.
In contrast Chinese steel prices have fallen 17% in the past few months as demand (and output) has slowed.
