Watch oil, gold and the value of the US dollar this week as fighting worsens in Libya, unrest spreads through the rest of the region and a major protest which may hit Saudi Arabia on Friday night, our time.
The surge in oil prices on Friday helped gold go higher and hurt the US dollar which had already been weakened by the emergence of a probable rate rise in Europe next month.
Global prices ended at their highest level for more than two years, oil also rose, but copper, another leading indicator, was weaker
The way the fears about oil and inflation undermined the impact of the reasonable jobs report for February was instructive and will be repeated now for months to come until the Middle East settles.
The greenback’s weakness and the unrest in the Middle East will be the major drivers of commodity market action from now on.
As speculation grows about a rate rise in Europe, the US dollar will fall, sending commodity prices higher, especially oil and gold, and adding to the inflationary pressures in the US (but helping cap those in the eurozone and Australia).
Economic reports from the US and China for example, will have a limited impact. Any sign that the eurozone bailouts of Ireland and Greece last year are in danger should also be monitored ahead of a major European leaders’ summit later this month on the question and how to set up a system to resolve future problems (Portugal?).
The probable rate rise in Europe next months from the ECB (signalled on Thursday night by Bank President Jean-Claude Trichet) will add to the funding pressures for Greece and Ireland, and those on Portugal where long term bond rates have been around 7% now for much of the year.
For the week, the euro gained 1.7% against the greenback, while the dollar added almost 1% against the Yen. The Australian dollar rose against the US currency as well.
Brent oil prices in London rose above $US116 a barrel and West Texas Intermediate jumped more than $US3 a barrel to $104.42, its highest since September 2008.
April Brent crude ended up $US1.18 to settle at $US115.97 a barrel, having reached a high of $US116.49. Brent rose 1.2% for the week, after rising 9.4% last week. WTI rose 2.9% on Friday and 7% over last week.
Because of the oversupply at Cushing in Oklahoma, which is keeping downward pressure on US futures market prices, Brent is now the best global oil price guide.
The premium for Brent finished at more than $US11 a barrel after hitting $US15 at one stage earlier in the week.
Estimates of how much Libyan oil output is shut continued to rise on Friday, with the International Energy Agency revising up its estimate to 1 million barrels per day (bpd).
Libya exported 1.6 million bpd last year.
Gold rose above $US1,430 an ounce on Friday, while silver surged % to 31-year highs, off the back of the jump in world oil prices.
Bullion hit a record high of $US1,440.10 an ounce on Wednesday and notched up its fifth consecutive weekly gain as a result.
Spot gold hit a high of $US1,431.85 an ounce and was up 0.8% at $US1,427.31.
April gold futures ended $US12.20 higher at $US1,428.60 an ounce.
But Reuters said it was thin trading, with volume down nearly 50% from the previous session and 30% below its 30-day average.
In other words, there’s no great support for the metal at the moment, which might mean a sharp fall is coming.
Spot silver gained 3.3% to $US35.31 an ounce, having earlier hit a high of $US35.46, the highest it has been since 1980.
May silver futures rose $US1, or 2.9%, to $US35.33 an ounce, another 31-year high for the metal.
The metal gained 7.4% last week.
Three-month copper on the London Metal Exchange fell to $US9,895 a tonne from $US9,910 on Thursday.
And New York copper also dipped a touch to finish on $US4.4720 a pound.
Commodities jumped to the highest in more than two years, led by gains in agriculture as cotton prices hit new record levels and oil and gold jumped sharply.
Silver hit new 31 year his and cocoa, a new 32 year high high on political unrest in Ivory Coast.
The Standard & Poor’s GSCI Total Return Index of 24 commodities reached 5,489.5 points, the highest level since November 2008.
Cotton rose the maximum allowed in New York, and cocoa touched the highest since 1979.
ICE May cotton futures jumped 7 cents, or 3.4%, to $2.127 a pound in New York, Chicago May wheat futures rose 9.5 cents, or 1.2% to $US8.33 a bushel and corn soybean futures both rose 0.2% in Chicago.
May cocoa rose $US17, or 0.5%, to $US3,750 a tonne in New York after reaching $US3,775 a tonne, the highest since January 1979.
