Something of a turnaround in commodities last week – instead of a continuation of the recent across the board slide, US crude stood out with an unexpected rise.
The increases came despite weaknesses elsewhere in gold and other metals and grains – although US pork and beef prices continue to rise strongly, as do Australian export beef prices.
But the overall trend in major commodity indexes remains downwards – sending a big message to other markets that inflation is not going to be a problem for a while.
That once again is proving wrong all the doom and gloom merchants who have persisted with their ignorant forecasts of rampant inflation from central bank easing programs.
It just hasn’t happened. US 10 year bond yields fell last week to 2.53%, trimming the gains for this month to just 0.13%, which is hardly nothing when viewed against the current strength of the economy.
US West Texas Intermediate (WTI) type crude managed to snare its biggest weekly gain in a month, thanks to the stronger second quarter US growth figures (an annual GDP growth rate of 4.6% from the previous 4.2%).
The slow but steady sell-off in commodities is starting to match the strike a chord in the increasingly uncertain US equity markets, aided by the rising dollar, which is helping send commodity prices lower.
That in turn is being aided by ever-rising stocks of oil (especially in the US), grains and other metals.
But that belief will prove temporary as economic growth in the third quarter slows from the high 1.1% quarter on quarter growth rate in coming quarters. US economic growth is now running at an annual 2.5% for the first two quarters after the 2.1% in the March quarter.
WTI narrowed its discount to Brent crude in London to a one-year low, according to Bloomberg data.
But the strength in oil was limited to the US market – Brent dropped for a third week in four despite the US military campaign against Islamic State in Iraq and Syria and continuing tensions in Ukraine, Nigeria and Libya.
WTI for November delivery rose $1.01, or 1.1%, to settle at $US93.54 a barrel in New York. That rise accounted for most of the 1.2% rise for last week..
Brent crude for November settlement closed steady on $US97 on the ICE Futures Europe exchange in London, down 1.4%. Bloomberg said WTI’s discount to Brent shrank to $US3.46, the smallest in a year.
Comex gold futures for December delivery fell 0.5% to settle at $US1,215.40 an ounce in New York. They then firmed in after hours trading to $US1,220 an ounce.
The settlement left the price down 0.1%, but the gain in late trading pushed gold into the black for the week by around 0.4%.
Gold is down 8% so far this quarter and last week toughed the lowest level since the start of this year at just over $US1,206 ann ounce.
Comex silver futures for December delivery rose 0.6% to $US17.537 an ounce. On Thursday the price touched $US17.27, the lowest since June 2010.
This year gold is up around 1.5%, but silver has dropped 9.5% in a major parting of the ways with its more expensive precious metal.
Comex copper futures found a bit of strength from somewhere last week to close higher after hitting a 14 week low on Thursday, according to Bloomberg data.
Friday’s gain was put down to the rather tenuous reason of the stronger than expected US second quarter growth rate.
But they still lost 3 USc last week to end on $US3.0355 a pound. That was a small 0.2% rise in Friday trading, which stood out because of Thursday’s weakness.
On the London Metal Exchange (LME) three month copper edged up 0.3% to $US6,718 a tonne or $US3.05 a pound.
But London nickel prices fell 2% on the LME to $US16,980 a tonne, to be 19% under the closing high this year of $US21,000 in May.
The metal is now within sight of moving into bear territory (a 20% fall from the previous peak).
It is already in correction from that high as supplies of the metal slowly rise to offset the ban on exports by Indonesia at the start of the year.
Bloomberg said aluminium, lead and tin fell in London, while zinc was unchanged.
And in Chicago, corn futures fell to a five-year low on Friday as the harvesting of the record US crop got underway.
Chicago Board of Trade corn futures for December delivery dropped 0.9% to close at $US3.23 a bushel after they had touched $US3.2275, the lowest since September 2009.
Corn has dropped 23% in 2014 after falling 40% last year.
Soybeans hit another four-year low, and wheat yesterday touched the lowest since 2010 last week in Chicago.
