The price of crude oil, gold, copper, and a considerable number of other commodities is at its lowest levels in the past 16 years, erasing all gains made during the growth of the Chinese economy in the first decade of the new millennium.
The main reason is not a slowdown in demand but rather that it has not grown at the same pace as supply, making that side too heavy on the scale. The increasing production of key commodities such as oil, corn, and iron ore simply does not find a market, and thus the lower prices in trading these materials are logical in order to create a balance between supply and demand, claims Ole Hansen, head of the commodity sector at Saxo Bank.
Financial and physical investors in gold have been seeking other options for some time, so for example, gold reached new multi-year lows in July as hedge funds and ETF investors sold off the yellow metal, explains Hansen. He reminds, however, that the nervousness over devaluations in China helped recover to a level of $1,170 per ounce, but as estimates around the Fed’s interest rate decision continue, gold will remain under pressure even though increased market uncertainty and the decline in the value of currencies and stocks in emerging markets would mean demand for alternative investments.
– Our estimate for gold by the end of the year is an increase to $1,275 per ounce, unless a significant drop below $1,080 occurs at some point. Given the expectations for gold, but also for industrial metals, silver should perform better than gold by the end of the year, and I expect it to reach $17 per ounce by the end of 2015 – says Hansen, adding in a brief overview of corn that abundant supply from North and South America will fill inventories ahead of the upcoming winter and therefore, unless some last-minute disruption occurs before the harvest, the price of corn has limited potential for growth.
Copper is the main benchmark with which the market tries to decipher what demand will be like from the world’s largest consumer, China. As concerns grow that the slowdown in the Chinese economy will be faster than expected, the price of copper is sliding and is currently at its lowest levels since the 2009 recession, according to Saxo Bank. Supply, on the other hand, is increasing in anticipation of continued strong demand in developing countries, not just in China. As there has also been a slowdown in that area, a response from copper producers is only expected. Accordingly, growth is limited, but shifts are possible given the stimulus measures being promoted by China. I therefore believe that copper will recover from its current low levels towards $5,500 per ton by the end of the year, emphasizes Hansen.
