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Commodities Briefing 26.Jul 2013

Posted on 26 July 2013 by VRS |  Email |Print

Mounting controversy and alleged market manipulation has led Washington legislators to take a stronger look at major banks’ hold over commodities, with the Fed to possibly reevaluate regulation in the coming months.
But for investors, the case for holding commodities as a strategic move is still clear, according to Goldman Sachs commodity strategist Jeffrey Currie. Currie tells clients three reasons why: “1) commodities as a hedge against hostile markets amid rising geopolitical risks,……………………………………….Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

Commodities do not diversify an investment portfolio, according to new research by the Bank for International Settlements (BIS), overturning conventional wisdom that including commodity futures can reduce the volatility of returns.
Beginning in September 2008 and continuing through 2012, commodity and equity prices have shown heightened correlation, Marco Lombardi and Francesco Ravazzolo argue in a paper “On the correlation between commodity and equity returns” published on July 11………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

A new study from the Bank of International Settlements (BIS) raises doubts about the value of commodities as a tool for enhancing portfolio diversification. The paper’s smoking gun, so to speak, is that “the correlation between commodity and equity returns has substantially increased after the onset of the recent financial crisis.” Some pundits interpret the study as a rationale for avoiding commodities entirely for asset allocation purposes. But that’s too extreme.
In fact, this BIS paper, although worth a careful read, isn’t telling us anything new. That said, it’s a useful reminder for what should have been obvious all along, namely: there are no silver bullets that will lead you, in one fell swoop, to the promised land of portfolio design………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

Global natural-resource stocks have sunk to the bottom of the barrel in an otherwise bullish first half of the year for equity markets. The Morgan Stanley Commodity Related Equity Index dropped 3.7 percent in the six months ended June, compared with a gain of 13.8 percent for the benchmark S&P 500 Index.
And that wasn’t just a recent phenomenon: As shown in the chart below, commodity stocks have trailed the S&P 500 for over two years — and by a whopping 36.5 percent………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

There are two new dimensions to international oil markets that are creating a dilemma for Opec and may be sowing the seeds of an oil price shock. The first is the fallout from the Arab uprising, which began in 2011. The second is the development and application of shale technology – horizontal drilling and hydraulic fracturing or “fracking” – to oil production.
A significant consequence of the upheaval in the Middle East and north Africa is that oil-producing governments need more revenue to pay for social policies that will assuage popular unrest………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

The OPEC countries, excluding Iran, witnessed a five per cent increase in net oil export revenues in 2012 from the previous year, amounting to earnings of about$982 billion, the US Energy Information Administration (EIA) has estimated.
This is estimated to be the largest level over the 1975-2012 period for which EIA has tracked OPEC oil revenues. According to EIA’s revenues fact sheet, Saudi Arabia earned the largest share of these earnings,$311 billion in 2012, representing approximately 32 per cent of total OPEC revenues……………………………………….Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

Crude shipments from the Organization of Petroleum Exporting Countries will decline from near their highest in a year as summer demand passes its peak, tanker-tracker Oil Movements said.
The group, which supplies about 40 percent of the world’s oil, will cut exports by 410,000 barrels a day, or 1.7 percent, to 23.95 million barrels a day in the four weeks to Aug. 10, the researcher said. The figures exclude two of OPEC’s 12 members, Angola and Ecuador………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

Whether the price of oil and gas is moving up, down, or sideways, the commodity still needs to get transported somewhere. And with a slowly improving economy, the U.S. oil and gas pipeline infrastructure will be called upon to move more and more liquid gold.
Today, America’s natural gas pipeline network is made up of 210 different systems covering 305,000 miles of interstate. In the United States, 55,000 miles of trunklines move 5.6 million barrels of oil each day………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

Have the mainstream media yahoos who keep screaming about “the death of the commodity bull market” filled up their gas tanks lately? The price of gasoline is going up. And yep, crude oil is in a big bull market, the kind that just gushes potential profit opportunities.
West Texas Intermediate, the U.S. crude oil benchmark, used to trade at a discount to international benchmark Brent Crude. That’s over. Now, new pipelines and rail are carrying more U.S. crude to refiners on the coasts, relieving a storage surplus. At the same time, U.S. refiners are able to export more refined product to eager customers overseas………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

Gold producers cut their hedge books further in the first quarter of this year and look set to favor net dehedging for the rest of the year, despite a sharp fall in prices, Societe Generale and Thomson Reuters GFMS said Wednesday in their latest global hedge book analysis.
The first quarter of 2013 saw further net dehedging by gold producers, with a 352,000 oz (11 mt) fall in the outstanding volume of delta-hedging against producers’ hedge contracts. “At end-March, this left the global hedge book standing at 3.59 million oz (112 mt), a new quarterly low since our quarterly series began in 2002,” the companies said in a statement………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

Goldman Sachs is sticking to its average forecast of $1,413 for an ounce of gold this year as it does not see sharp reductions in U.S. Federal Reserve stimulus, after fears of such cuts drove bullion prices to near three-year lows recently.
In a note issued on Wednesday, Goldman said it also expected gold to average $1,165 an ounce in 2014 as previously forecast, although the price could reach $1,050 by the year-end………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

Gold and silver recently hit their lows –$1,180 for gold and $18.50 for silver—after being hit by tremendous persistent selling from the SPDR gold ETF and then a major, well-engineered bear raid from Goldman Sachs, J.P. Morgan Chase alongside several hedge funds.
This entailed the selling of over 1,000 tonnes of physical gold in less than three months. The bear-raid in mid-April involved around 500 tonnes of this. In a market where the net supply is just over 10 tonnes a day, this wave of selling overwhelmed demand, initially and caused the precipitous fall in gold and silver prices………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

The bear market in silver is poised to turn around the fortunes for zinc as miners reduce production and end the seven-year glut in the industrial metal. Silver makes up 40 percent of the value of byproducts from zinc mining and helps reduce costs for mineral companies, HSBC Holdings Plc says.
Its 33 percent slump in the past seven months added about $130 a metric ton, or 7 percent, to average zinc production costs, according to CRU, the London-based research company. Zinc demand will exceed supply by about 4,000 tons in 2014, from a 44,800-ton surplus this year, the average of 14 analyst estimates compiled by Bloomberg show………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

Potash Corp. of Saskatchewan Inc. gave a sharp reminder that, alongside gold and iron ore, the price of another of Canada’s key commodities remains under pressure: potash.
The world’s largest potash producer by capacity blamed weak prices for potash and its other fertilizer products for weaker-than-expected earnings. Shares in Potash Corp. were down 2.27% at $38.28 in New York in late afternoon trading………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

No one would describe aluminum’s recent pricing as strong. Since the beginning of the year the price of the metal has fallen roughly 14¢ and was trading at 82¢ per lb. at the time of publication.
But looking deeper into the current drivers behind the price shows that the metal could well be in for a more precipitous drop in the coming year. Not that there is any consensus on such a forecast. In the world of aluminum there are currently two firmly entrenched and divergent camps………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

The U.S. government is stepping up scrutiny of firms that own metals warehouses amid concerns of possible price manipulation and collusion, according to people familiar with the matter.
The Commodity Futures Trading Commission and the Justice Department have begun preliminary investigations of the metals warehousing industry, which stores physical commodities such as copper, aluminum and zinc, these people said………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

The commodities boom may not be all the way back, but exchange-traded products offering exposure to gold, silver and other precious metals have enjoyed impressive performances over the past month. Buoyant U.S. economic data has helped lift the U.S. Oil Fund 11.2%. Equity-based energy and mining ETFs have gotten in on the act as well with some mining funds ranking among July’s top performers.
Select global ETFs are benefiting from improved price action in commodities, too. Many investors may already be aware of the utility of some ETFs that track Australia, Canada and South Africa as precious metals plays, but the WisdomTree Commodity Country Equity Fund offers an avenue for investors to get commodities exposure without directly committing to just oil or precious metals………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

The world’s largest silver-backed exchange-traded fund iShares Silver Trust posted its biggest one-day jump in holdings since January as a rebound in silver prices triggered resurgent buying from longer-term retail investors, analysts said on Thursday.
The tonnage of silver bullion bars held by the U.S. silver ETF increased 144 tonnes, or 1.4 percent, on Wednesday to 10,428 tonnes, a two-month high………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

Following its rapid growth over the last decade, Edward Allen, partner at Thurleigh Investment Managers, examines the current state of the ETF market.
As one of the fastest developing investment industries of the past decade, exchange traded funds (ETFs) are rarely far from the headlines. In the past few years, we have seen impassioned debates on physical versus swap-based ETFs, the merits of active ETFs, dividend-enhanced ETFs, commodity ETFs, bond ETFs, alternative ETFs… So, what’s new?……………………………………….Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

One of the most-successful, high-profile hedge funds indicted on insider-trading charges. Lousy performance. Big losses on gold bets gone bad. Bad P.R.
Not to mention a critical story earlier this month by Bloomberg BusinessWeek which wondered aloud if these pricey investment vehicles run by the so-called smart money for rich folks are for sucker……………………………………….Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

Commodities track stocks too closely to make them suitable for equity investors seeking to minimize risk, according to Marco J. Lombardi, an economist at the Bank for International Settlements.
“The common lore that commodities should serve as a hedge does not seem to be solidly grounded,” Lombardi and Francesco Ravazzolo, an economist at the Norwegian central bank, wrote in a paper two weeks ago. The research was published by the BIS, which keeps records for the world’s central banks………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

The so-called “Too Big to Fail” (TBTF) Banks - Goldman Sachs (GS), Morgan Stanley (MS) and JPMorgan Chase (JPM) generated an estimated $4 billion in commodity revenues last year and now face growing pressure from a number of investigations into their operations, and as the Federal Reserve yesterday reviewed Wall Street’s right to operate in the Commodity markets.
Several experts told a Senate subcommittee Tuesday that allowing financial holding companies to have increasing control over physical commodities such as aluminum and oil could give them too much power over producers and manufacturers………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

JPMorgan Chase & Co’s commodity trading arm is looking to sell more of the electricity deals it has with U.S. power plants and wind farms, a source familiar with the business said on Wednesday, at a time when Wall Street’s involvement in physical commodity markets is under heightened scrutiny.
The so-called power tolling and marketing deals cover enough electricity to light up Indiana’s 2.8 million homes, according to detailed regulatory filings, and include almost 3,000 megawatts of power generation spread across nine states………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

Soaring value of the real has badly hits exports – and without growth, neither the Olympics nor the pope can help. As Pope Francis pushed his way through the crowds in Rio de Janeiro’s shantytowns on Thursday, his message that next year’s World Cup and the 2016 Olympics would provide jobs and alleviate poverty was greeted with some scepticism.
Brazil is facing hard times. While major sporting events hold out the prospect of a short-term boost to growth and prosperity, they can only disguise a problem that has loomed for some time: that a high currency kills the trade in price-sensitive goods………………………………………..Full Article: Source

Posted on 26 July 2013 by VRS |  Email |Print

An unprecedented freeze in United Nations carbon trading is fanning speculation the five-year-old market designed to combat greenhouse-gas emissions in poor countries is in danger of becoming superfluous.
Not a single UN Certified Emission Reduction, or CER, changed hands on July 22 and July 23, according to data from ICE Futures Europe, keeping the market on course for the lowest monthly aggregate volume since March 2008. The 14.3 million tons of offsets bought and sold this month compares with the record 211 million tons traded in October and an average 52 million over the past 12 months………………………………………..Full Article: Source

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