Commodities are having a buoyant start to the week across the board Monday, with a weaker dollar bringing support following the uneventful G20 meeting over the weekend. While members did come to the general agreement that active devaluation of currencies should be reduced, exactly what constitutes that, and to what extent it has to be reduced, were not defined, leaving the door open for the so called ‘currency war’ to continue.
The weaker greenback is helping boost the precious complex today, with spot gold once again testing its head above $1,345/oz. Friday’s commodities future trading commission (CFTC) commitment of traders report, showed for the week ending October 19, net long positions in Comex gold futures fell by 6,122 contracts to 249,752; their lowest level in a month.
The move came as speculative players took profit; liquidating 5,289 long contracts in the week while at the same time a net 833 short contracts were opened on the market, bring total short positions to their highest levels since July. The CFTC report showed a similar picture for silver, with a fall of 2,055 contracts in the net long position, predominantly due to a 3,337 contract speculative long liquidation. This was counterbalanced slightly by a net 1,282 short contracts being covered in the week.
Crude oil is also seeing an upbeat start to the week today, with some risk appetite in the equity arena filtering through the correlation trade to the energy market. Hurricane Richard is beginning to get the market talking about the possible impact on Mexican production if it hits the southern edge of the Gulf of Mexico in the next few days, although as yet this is having only nominal impact on crude prices.
The CFTC report meanwhile, showed a large 28,496 contract reduction in the net speculative long position for the week ending October 19, coming from a fairly balanced 14,690 contract liquidation in long positions, and 13,806 additional short positions being opened. This move may represent a more significant shift towards a bearish outlook for crude going forward, although at 100,830, the net long position is still far above those levels seen just four weeks ago.
As with other commodities, base metals are seeing strong gains this morning, with copper hitting a 15-month high on the London Metal Exchange (LME) this morning around $8,500/tn, having already peaked at the highest level in Shanghai since May 2008 overnight, at 65,000 Yuan. The CFTC report showed similarly strong data for Comex copper futures, with the net long position increasing to the highest level since January, up 2,082 contracts to 26,150.
This came as speculative long positions actually increased to the highest level since 2003, up 1,509 contracts to 54,303. Although this offers a very strong signal to where speculative traders think copper prices are heading, it is worth noting that measured as a percentage of open interest, which increased by 3,938 contracts in the week to 162,855, the long position has actually been hovering around the same level for the past three weeks, about 33.3%; only the highest point in about six months.
Another story gathering strength in the base metals complex is the ever increasing prices of Rare Earth Elements (REEs) or metals, which have sky rocketed since China, who produce around 97% of the worlds REE’s, announced it is cutting exports of the strategic metals.
Speculation has been growing that the rapid and strong gains in the market may now be forming a bubble, opposed to a fundamental appreciation, bringing with it a number of junior exploration and development companies, whose value as rocketed in recent weeks.
Although any rapid gains such as these, are inevitably followed by a period of selling and consolidation, it is worth noting that the gains in REEs have been based for the most part on true fundamental data; a tightening of supply coming from the world’s top producer, as well as a growing awareness of the metals that was not really there, even a year ago.
With this, one could certainly suggest that any fall in prices in the near to medium-term, could in fact be seen as dip-buying opportunities to take a longer-term position in the market, with the fundamental picture for REEs not looking set to change any time soon.
Disclosure: No position