Which US presidential candidate does gold prefer?
Gold loves chaos and should be hitting new highs, especially with inflation coming down and with it, two rate cuts likely before year’s end.
Commodities took another hit today on the Toronto Stock Exchange, as declines in oil, silver, copper and gold dragged the S&P/TSX Composite Index down 128 points by mid-day trading. The declines continued a trend that started at the beginning of the week, with the Canadian stock market down 240 points on Tuesday.
As of 11 a.m. PST Wednesday, gold had plummeted to $1513/oz from a high of $1570 on May 2, spot silver fell to $39.60/oz, and copper dropped to $4.16 per pound on the London Metals Exchange. WTI crude oil fell below $110 a barrel to $109.06 in mid-day trading while Brent crude oil was down nearly 1% to $120.97.
MINING.com asked Patricia Mohr, vice president, economics and commodity markets at Scotia Capital, to analzye what is happening with the markets and what we can expect in the near future:
MINING.com: Let’s start with oil. Why are prices down?
Patricia Mohr: Prices are down for crude I’d say mostly because of the advanced employment data out this morning, which was actually not that bad. It was up something like 178,000 jobs but the market was probably a bit disappointed, they were expecting more. So I think there’s some thought that while employment continues to improve in the U.S., the pace is not quite as high as many observers were hoping for. So you get worries over consumer spending in the United States, worries that gasoline demand may slow both because employment conditions are not ramping up rapidly, and also because gasoline prices are quite high in many areas of the U.S. I doubt that we’re going to see prices below the $100 mark though.
MINING.com: So you think this is a short term correction?
PM: I don’t think oil prices are going to drop sharply. The reason is there are too many geopolitical uncertainties in parts of North Africa, the Middle East, they’re going to continue to keep the geopolitical risk factor in oil price high, for the time being.
MINING.com: There’s been a drop in both gold and silver since the death of Osama bin Laden was announced this week. How much of a factor has that been?
PM: It may have contributed to the decline. I think the big drop-off in silver though is more related to the fact that silver toward the end of April got up to almost the high level of the 1980s during the Hunt Brothers silver squeeze, and I think when it got that high investors took profits. The other major factor is the CME in New York has raised the margin requirements on trading in silver futures, and perhaps that’s made it a little more expensive for investors to invest and speculate in silver, and again yesterday there was a big falloff in silver prices.
MINING.com: There was a headline today in the Wall Street Journal about George Soros selling gold in his hedge fund. How much of a factor do you think that’s been for the decline in gold?
PM: Retail investors do look at what some of the large institutional investors are doing, so that would be a negative.
MINING.com: Where do you see gold going?
PM: Gold is extremely volatile and difficult for the retail investor, so you might have some profit-taking for a time, but then some geopolitical or financial event that triggers another round of increases, so I don’t necessarily think the gold price rise is over. I think it could very well move up to $1600 per ounce without any difficulty.
MINING.com: How about industrial metals? What’s happening with the decline in the copper price?
PM: Copper prices have moved down a little in the past week on concern that China’s economy might slow, though it has not slowed yet on a macro basis. There has been some liquidation of inventories of copper cathodes by copper fabricators inside China, but we think they’re going to have to restock again. So you can get alot of volatility in prices but I think the price is going to stay quite high for copper. I’m still forecasting $4.40 a pound on average in 2011 for LME copper. last year it was $3.42, today it’s trading at $4.16 so I think demand for copper is actually going to pick up in the second quarter probably quite substantially. You may find in a few months time that the market responds to that and the price moves up again. Today’s price, $4.16 pound, is extremely lucrative.
MINING: com: So again, we should see this drop as a dip?
PM: It’s probably temporay but it does relate to the fact that monetary policy in China is being tightened, largely to control inflation, and control property market speculation in Tier 1 cities, but I wouldn’t expect copper prices to drop any more than they already have.
MINING.com: Thanks for the taking the time to speak with us today.
