The prices of raw materials from oil and gold to copper, cotton and sugar tumbled, underscoring an increasing aversion to commodity investments as the Federal Reserve prepares to raise interest rates for the first time in nearly a decade.
U.S. oil prices dipped below $50 a barrel on Monday during intraday trading for the first time since April, while gold slid 2.2% to its lowest level in five years.
The drops extend a retreat from the commodity sector that has picked up speed in recent months. Hedge funds and other investors are holding more bearish than bullish wagers on gold for the first time on record going back to 2006, according to data released Friday by the Commodity Futures Trading Commission. Investors cut their bullish bets on oil to the lowest level since March.
Investors pulled roughly $1.1 billion from commodities-sector funds during the second quarter of 2015, according to fund-data provider EPFR Global.
Driving the selloff are expectations that the Fed will raise borrowing costs in coming months, a move that investors expect to further boost the dollar and pressure the prices of commodities, which generally are priced in the U.S. currency. A rising dollar makes raw materials less affordable to overseas investors, while higher interest rates tend to draw money into yield-bearing assets and away from commodities, which pay their holders nothing and often carry storage costs.
Commodity prices fell close to the lowest level since 2002 on Monday, under pressure from a rout in precious metals, lower oil prices and weakness in most agricultural and soft commodities.
The excess return Bloomberg Commodity index, which tracks a basket of 22 materials, was on course for its lowest close in 13 years as strengthening dollar weighed on well-supplied markets for energy, metals and grains.
Across commodities, there are increasing signs that the more than decade-long “commodity supercycle” has ended.
Producers have responded to several years of elevated prices by bringing on new supplies, which have more than met growth in demand from emerging markets.
Gold dropped below $1,100 an ounce for the first time in five years; US WTI crude oil futures fell within a few cents of $50 a barrel, less than half its level of July last year; and copper in London slipped back towards a six-year low near $5,400 a tonne.
As originally proposed, the size of the surcharge would have been determined based on a measure of each bank’s systemic importance relative to other global banks. This made individual surcharges somewhat unpredictable; they would depend not just on a bank’s own actions but those of others, too. So, a bank seeking to reduce its surcharge by shrinking could be stymied if other banks took the same tack.
That wasn’t what the Fed wanted. Discussing the new rules, Chairwoman Janet Yellensaid the goal was to force banks either to shrink or to hold substantially more capital.
The revised rule uses a fixed measure of systemic importance. That should make the surcharge more predictable.
Microsoft's Encarta shrank the Encyclopedia business from $1.2B to $600M before Wikipedia shrank the business by another 90%.
Print sales of adult fiction have declined by over £150m since 2009, new figures show, as ebooks take an increasingly large bite out of the market.
A review of 2014 from book sales monitor Nielsen BookScan shows that while the decline in sales of print books in the UK slowed last year, with value sales down 1.3% to £1.39bn, and volume sales down 1.9% to 180m, the performance for printed adult fiction was markedly worse. The adult fiction market was the worst-performing of all areas of the book business, down by 5.3% in 2014 to £321.3m, with volume sales down 7.8% to 50.7m. In 2009, printed adult fiction was worth £476.16m.
The decline is even greater when paperback fiction is removed from the picture: according to Nielsen, hardback adult fiction sales plummeted last year by 11.6% to £67.9m, with just three titles – by crime and thriller bestsellers Lee Child, CJ Sansom and Martina Cole – selling more than 100,000 copies.
A lot of investors have become disillusioned with gold,” says Suki Cooper, head of metals research at Barclays in New York. “Safe-haven demand hasn’t been strong enough to lift prices, but has only been strong enough to keep them from falling.”
Many people may have bought gold for the wrong reasons: because of its glittering 18.7% average annual return between 2002 and 2011, because of its purportedly magical inflation-fighting properties, because it is supposed to shine in the darkest of days. But gold’s long-term returns are muted, it isn’t a panacea for inflation, and it does well in response to unexpected crises—but not long-simmering troubles like the Greek situation. And you will put lightning in a bottle before you figure out what gold is really worth.
With greenhorns in gold starting to figure all this out, the price has gotten tarnished. It is time to call owning gold what it is: an act of faith. As the Epistle to the Hebrews defined it forevermore, “Faith is the substance of things hoped for, the evidence of things not seen.” Own gold if you feel you must, but admit honestly that you are relying on hope and imagination.
Recognize, too, that gold bugs—the people who believe in owning the yellow metal no matter what—often resemble the subjects of a laboratory experiment on the psychology of cognitive dissonance.
When you are in the grip of cognitive dissonance, anything that could be regarded as evidence that you might be wrong becomes proof that you must be right. If, for instance, massive money-printing by central banks hasn’t ignited apocalyptic inflation, that doesn’t mean it won’t. That means it is more likely than ever to happen—someday.
You don’t want to be one of these people, spending years telling reality that it is wrong. There is a case to be made for owning gold, but it speaks in a whisper, not in the shouts of doomsday so customary among gold bugs.
Because gold, unlike stocks, bonds, real estate and other financial assets, generates no income, valuing it is all but impossible. “It’s intrinsically worthless or intrinsically priceless,” says Paul Brodsky, a former hedge-fund manager who now is a strategist at Macro Allocation, an investment-research and consulting firm in New York. “You can build a financial model to value it, but every input is going to be your imagination.”
'China released data on its gold holdings for the first time in about six years, but investors say the guessing game about the country’s actual inventory continues.
The People’s Bank of China on Friday published figures on its gold reserves for the first time since 2009. Its official gold reserves stood at 53.3 million ounces, or 1,658 metric tons, in June.
The last time China reported official figures was in April 2009. Back then, the figure stood at 1,054 metric tons, according to Ross Norman, chief executive officer at Sharps Pixley.
The latest total is about half what the market thought it was. The market was generally expecting a total of well over 3,000 metric tons, according to Brien Lundin, editor of Gold Newsletter.'
After yesterday's announcement by China claiming they only possess 1,658 tonnes of gold, today one of the top money managers in the world told King World News that official gold holdings in China may actually be 10X that figure. He also discussed brilliant monetary chess move against the West.
In Shanghai, close to 5 tonnes of gold was sold on the SGE in a two-minute window just prior to 9:30am, in a market where the normal volume traded is 25 tonnes in an entire day. The August 15 Comex gold contract also saw 7,600 contracts traded in the same two-minute window, though intraday trading data showed an unusual spike in Comex volume just before Shanghai, suggesting Comex gold lead the selloff, but SGE clearly exacerbated it.
Thianpiriya says the technical outlook is very bearish now for gold, saying “further downside risks remain” and that “other indicators also suggest the likelihood of an immediate rebound is low.”
Gold fell 1% on Friday after the People's Bank of China revealed lower than expected gold reserves. All the signs coming out of the world's biggest gold consumer right now are cautious.
“We would be sellers of rallies, and wary of buying dips,” Thianpiriya says.
Here’s a chart of the crazy move in the gold price.
