The Bank of Japan’s move to start paying negative interest rates could be a big game changer so far as commodity markets are concerned.
On the one hand it should be a negative by pushing the value of the yen lower and the US dollar higher – that’s what happened to the euro when the European Central Bank started charging negative rates in mid 2014. That has helped spark a rebound in the eurozone economy and share markets.
That will be negative for commodities and we can expect more downward pressure on already fragile prices for oil, copper, iron ore, gold, etc.
But it will also be positive for commodities, especially gold, over time because it means it will cost less to hold them, and for some commodities in contango (such as oil), the profit from selling forward to take advantage of higher futures prices, will prove to be even more attractive (it is why there is a lot oil being stored at sea and on land at the moment).
For gold though the BoJ move will increase its attraction to investors as a store of interest in volatile times – its 5% plus rise in January is the prime example of this and the rise was the best for a month in a year.
But the outlook for gold remains uncertain after the BoJ’s decision.
The question is whether the strength of the greenback will offset the boost from increased interest from nervy investors, and those looking to benefit from structural changes in the markets. The strength in the dollar since the ECB’s move in mid 2014 has been a notable negative for gold and silver.
On Friday night, Comex April gold futures climbed by 30 cents to settle at $US1,116.40 an ounce in New York to be up 1.8% for the week and around 5.3% for the month.
Comex March silver futures rose 1.1 cents, or 0.1%, to end at $US14.243 an ounce, for a weekly gain of 1.3% and 3.5% for the month.
Comex March copper futures added1.6 cents, or 0.8%, to $US2.067 a pound. It was up about 3.2% for the week, but down around 3.3% for January.
April platinum added $US6.40, or 0.7%, to $US874.30 an ounce, for a weekly gain of 5.1% but a monthly fall of over 2%. March palladium climbed $US6.50, or 1.3%, to $US498.50 an ounce, but lost 0.3% over the week and a massive 11.6% for the month.
Meanwhile oil futures had a second good week, but still ended January in the red.
US oil futures settled higher on Friday in New York on continuing claims that major oil producers were talking about an agreement to reduce crude output. That remains talk, but so desperate are conditions in the oil market, that traders are willing to believe anything. Opec officials have denied reports that Russia would talk to the producer group about production cuts.
The talk and upward pressure on prices though forced more and more bears to cover their short positions in oil, which helped push prices higher for the second week in a row. March West Texas Intermediate crude futures on Nymex added 40 cents, or 1.2%, on Friday night to settle at $US33.62 a barrel in New York, the highest settlement since January 6. Prices rose 4.4% for the week, but lost about 9.2% for the month (after the 20% plus slump in December).
In London March Brent crude futures rose 85 cents, or 2.5%, to end at $US34.74 a barrel. The contract, which expired at the settlement, rose 7.9% for the week, but lost 7.8% for the month.
