Sharechat Logo

Your wealth Investors reap rich harvest

Neville Bennett

Friday 5th December 2003

Text too small?
Commodity investors are reaping rich rewards for there is a global boom in prices, which is magnified in futures markets.

The Reuters-CRB index is at its highest level for seven years. It has gained 9% year on year but 20% gains have been recorded for crude oil, gold and copper. Silver has gone up 16%. Live cattle and soy are up by a third and cotton by a half.

Analysts say the boom is driven by US growth, a low dollar, Asian demand, geopolitical tensions, low global interest rates and poor weather in some regions. Even so, some of the prices are startling. The rise in US beef can be partly explained by several factors but a 35% gain is almost inexplicable.

It may be a mistake to ascribe the boom to a supply shortfall; when the data are analysed, I suspect the boom will reflect additional demand.

Inflation is evident in some economies. The best market indicator is gold, which has reached a seven-year high of $US400/oz. Other precious metals, notably platinum and silver, are booming. Copper is also in demand and it is an indicator of anticipated demand in manufacturing.

Accounting for price increases in crude oil and natural gas is also quite complex. Opec has stated its price objective is $US22/bbl, but its behaviour seems to be more consistent with $US25, as it said it would cut production by 900,000bbl. On the other hand, a rise in tanker freight rates implies the cuts have not been as large as projected.

Opec was to meet on December 4 and the futures market has edged to over $US30. It should be remembered Opec's share of the market is only 38% and some non-Opec suppliers such as Russia are expanding aggressively. Supply is good so rising global demand has to be the best explanation of the rise.

In both oil and gas, prices seem at their tops and some traders will be closing out their positions. The bears will hang out for bad winter weather in the northern hemisphere in February-March 2004.

The overall impression of futures markets is that most prices (gold excepted) are near their ceilings. There will be an increase of short contracts. Yet politics always has a great influence on futures; a bomb here or there can change perceptions quickly.

The US dollar is the key to change. If it continues to lose ground relative to other currencies, the consequences will be positive for commodity prices. A rise in terrorist activity will also be seen as swelling the US budget deficit, and that will also affect the dollar.

Some exposure to commodities is likely to reap good returns. My best source of deep analysis of the futures markets suggests sharemarkets will go sideways for some time but commodities are set to rise.

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

NZ dollar bounces off four-year low; seen weaker
Vector urges regulatory change in low-interest-rate environment
Vector urges regulatory change in low-interest-rate environment
Govt moves against surprise Supreme Court 'black hole' tax ruling
Qantas CFO Race Strauss to join A2 Milk as CFO
Climate Committee seeks data, evidence for future carbon budgets
Spark's wobbly world cup start raises stakes for live-streaming - analysts
An algorithm dunnit: anatomy of Spark's mid-match surrender
Stanley-Tallwood liquidator cuts deal over KiwiBuild development
Stanley-Tallwood liquidator cuts deal over KiwiBuild development

IRG See IRG research reports