Commodity prices were mixed in September as base and precious metals surged following an announcement by the Federal Reserve (Fed) that it would start a third ’unlimited’ stimulus program. In contrast grain and energy markets, which were the winners of the previous months, were weaker.
Investors regained their interest in precious metals after Ben Bernanke, the chairman of the Fed, announced further bond buying and more cheap money in the future. Keeping interest rates at or near zero for many years and real interest rates firmly negative on 10-year US bonds is considered positive for precious metals. Gold hit its high for the month at US$1,790 and bullion for immediate delivery in London climbed to a record price at EUR1,379.32 (US$1,773.64) an ounce.
Interestingly crude oil futures couldn’t benefit from the Fed’s intention to create higher inflation expectations. WTI crude oil lost more than 6% for the month and Brent crude oil shed more than 3%. Talk that Saudi Arabia boosted crude supplies, the upcoming US presidential election and prospects of weaker energy demand from China pushed prices significantly lower.
Soybeans and corn fell more than 10% as traders liquidated positions and took profits after an impressive rally so far this year.
Industrial metals climbed near to their 2012 highs, clearly outperforming all other commodity markets in September. Nickel, lead and zinc, all traded on the London Metal Exchange, rallied between 10-15%. The FTSE Physical Commodity Industrial Metals Index, including aluminium, copper, nickel and zinc advanced 8.95%. Similar to precious metals, the driver behind rising prices is the stimulus spending by the major central banks (the US, Europe and Japan) and in addition China’s US$157 billion infrastructure program. The high level of existing supply stocks and worries about a serious economic downturn in China could dampen the up move in metals over the medium term but for now they are all positioned to move higher.
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