Is the commodities boom over?

0154 GMT [Dow Jones] Normally bullish gold commentator Bill Murphy of lemetropolecafe website says technical damage to gold is "beyond considerable" after yesterday's 3.8% decline from $855 (Friday's close) to $823 at NY close. "While we ought to have some sharp rallies from here, it normally takes many months for gold to compose itself enough to make a run back up and eventually into new high ground." Spot gold now dropping sharply in Asian trade, $800 psychological level likely next support. Spot gold bid at $805.25/oz, down $17.75. Gold down 17% from recent peak of $976.60 (closing level on July 15).(JAC)

Will gold fall through $800??

Sorry to keep posting snippets, but it seems as though the tide has/is turning against metals.

0218 GMT [Dow Jones] Gold unlikely to recover in short term, held hostage by resurgent USD, an oil market focused on worries over demand strength, says Mark Pervan, commodity analyst at ANZ Bank. "I think the lack of oil market reaction to the Georgia-Russia flare-up is a cause for concern for both oil and gold. It shows the oil market is now focused on demand, and is no longer responding much to fears of supply disruption." Adds this means inflation fears receding, which negative for gold price. Tips gold to retreat to $730/oz by March next year. Spot gold bid at $806.50, down $16.50 since NY close.(JAC

Gold, Platinum Lead Commodities Into Bear Market on Growth Risk

By Glenys Sim and Dave McCombs

Aug. 12 (Bloomberg) -- Gold, platinum and silver plunged to their lowest in more than seven months, leading commodities into a bear market, on concern a spreading global economic slowdown will reduce demand for raw materials.

Precious metals also slumped as crude oil prices fell and the dollar gained, reducing their appeal as an inflation hedge and alternative investment. Gold has tumbled 22 percent from its record $1,032.70 on March 17. Platinum and silver are down 36 percent and 33 percent from their peaks.

Commodities, as measured by the Standard & Poor's GSCI index, have lost 21 percent from a record July 3, descending into a bear market. Crude-oil prices are down 23 percent from a peak of $147.27 a barrel July 11, on signs a U.S. economic slump will extend into 2009. Corn, wheat and soybeans are in bear markets after sliding from highs set this year.

``We're seeing a reconfiguration of the markets in the last 48 hours related to the realization that the slowdown in the U.S. has broadened across the globe,'' Darren Gibbs, chief economist at Deutsche Bank AG in Auckland, said by phone today. ``I'd imagine all sorts of trades are being unwound.''

Tumbling raw-material prices may erode profits at BHP Billiton Ltd., the world's largest mining company, and Exxon Mobil Corp., the biggest publicly listed oil company. Global energy and raw-materials stocks, last year's best-performing industries, fell into bear markets this month.

'Losing Luster'

The GSCI index surged 41 percent in the first half as equity markets and a declining dollar prompted a ``buying orgy'' by investors, Paul Touradji, founder of the $3.5 billion hedge fund Touradji Capital Management, said in March.

Gold fell as much as 2.6 percent to $802.34 an ounce and traded at $810.01 an ounce at 3:50 p.m. Singapore time. Platinum lost as much as 3.7 percent and silver 4.5 percent. The dollar traded near a 5 1/2-month high against the euro today and close to a seven-month high against the yen.

``The dollar had an enormous spike in the past couple of weeks, so the precious metals are losing their luster,'' Peter McGuire, managing director at Commodity Warrants Australia, said today by phone from Sydney.

The U.S. economy, the world's largest, will grow at an average 0.7 percent annual pace from July through December, half the gain in the first six months of the year, according to the median forecast of 50 economists surveyed by Bloomberg News from Aug. 1 to Aug. 8.

Boom Slows

Household spending, which has grown every quarter since 1992, is projected to stall in the last three months of the year as the impact of tax rebates fades, wages fail to keep up with inflation and property values fall, it showed.

The commodity boom is fading, says Michael Aronstein, chief investment strategist at Oscar Gruss & Son Inc. in New York.

``I think it's over in terms of the investment hypothesis, at least for the next several years,'' Aronstein said in an interview Aug. 5. ``I think the demand destruction, both in the developed world and the developing world is going to be quite a bit greater than people assume.''

Investor Jim Rogers, 65, who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce, differs. The fundamentals for commodities are ``astoundingly'' good and the bull market ``has a long way to go,'' he told a conference in Australia Aug. 6.

Fund selling of gold, the Australian and New Zealand dollars may have spurred today's price drop in precious metals, said Toshihiko Sakai, head of trading in foreign-exchange and financial products at Mitsubishi UFJ Trust & Banking Corp.

Fund Sales

``Hedge funds are probably unwinding long positions in commodities and high-yielding currencies, and short positions in low-yielding currencies,'' said Sakai in Tokyo. ``These position adjustments are likely to continue for now.''

Gold fell $20 an ounce in less than an hour today as the Australian dollar dropped 0.9 percent against the U.S. dollar, Bloomberg data shows.

``We've been surprised by the strength of the U.S. dollar rally over the past month,'' Goldman Sachs JBWere Pty analysts wrote in a report. ``Nevertheless, we believe the threat of rising inflation and the climate of general economic uncertainty remains constructive for gold in the medium term.''

www.bloomberg.com

5:11 a.m.Light sweet crude oil futures down $1.30 at $113.15 a barrel
5:10 a.m.Gold futures down $10.50 at $811.00 an ounce

from marketwatch 2 mins ago

www.marketwatch.com

explod said:

As for metals, they may have a bit of a flop for awhile due to the US going to the wall. But the world will go on, it will have to be greener so in will come nuclear reactors and electric motors to dirve us around. China and India are just not going to stop, (slow down a bit maybe) but the sheer numbers of people who will demand what we have/had will see our metals prices, particularly copper and uranium continue on the merry way.

Cheers, hope I did not spoil your party in this thread,

Explosions to all

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This is the exact thing we are stating.

Any near term 'flop' will dramatically impact on commodity prices. Look at valueing a company, a small change in expected EPS can have huge consequences for the 'value' of company in most methods of fundamental valuation. Same with commodities. Not to mention the shift in sentiment already being seen.

From this morning's Age

Fears rise that Australia's resources boom ending.

August 18, 2008 - 8:39AM

Fears are growing that the commodities boom is ending as investors who have fled the oil market desert gold, copper and other metals.

Oil prices have slumped 23 per cent in four weeks, while gold and copper have fallen by similar amounts and last week lead plunged 15 per cent.

The falls follow a fundamental shift in financial flows as investors prepare for a global slowdown, News Ltd reports.

"The speed and weight of money behind this move has been quite breathtaking," ANZ foreign exchange strategist Tony Morriss said.

The Australian dollar - the world's strongest currency in the first half this year because of its commodities link - has become one of the weakest over the past two weeks, falling 10 per cent against the US dollar and retreating even against the New Zealand dollar.

The Australian economy will still gain from boom-time prices for some time as sharp iron ore and coal prices are locked in for another 12 months, but previous commodity busts have been steep, and the economy could face challenging management problems, especially on the external account, if the terms of trade reverses sharply.

"Commodity booms end ugly, they always do, and there has never been an exception," Access Economics director Chris Richardson told the newspaper.

Mr Richardson said it would not be until coal and iron ore prices fell that the boom would definitively be over for Australia, although the downturn was more serious than the correction in base metals prices in 2006.

"This downswing is more consistent with the global economic fundamentals," he said, warning that Australia would face serious economic problems if the downturn continued. "The commodity markets are more central to Australian national income than either credit markets or share markets."

The government does not believe world commodity markets have reached a turning point and is pinning hopes on continued growth from China, with Treasurer Wayne Swan telling News Ltd: "Prices for our commodity exports are still at generational highs and ongoing demand from emerging economies give us some cause for optimism, despite slowing global growth."

Treasury believes the continuing strength of iron ore and coal markets suggests the boom retains some strength.

However, the simultaneous shifts in currency and commodity markets indicate financial markets now expect a worldwide slowdown over the year ahead.

Citigroup's New York-based energy analyst, Tim Evans, told the newspaper evidence had been emerging this year that soaring prices had changed the balance of supply and demand for oil.

As oil fell, so too did other commodity prices. Gold hit an all-time peak of $US1,032 an ounce in March and was trading at $US965 in mid-July but dropped below $US775 on Friday. Copper has fallen almost 20 per cent from $US8,950 a tonne on July 2 to $US7,335. Nickel is down from $US32,000 a tonne to below $US18,000. Aluminium, lead and zinc have had similar falls.

http://business.theage.com.au/busin...lias-resources-boom-ending-20080818-3x61.html

Allot of this weakness in commods is USD strength too, don't forget that.

Don't worry, it won't last forever.

CanOz

sam76 said:

From this morning's Age...

...The government does not believe world commodity markets have reached a turning point and is pinning hopes on continued growth from China, with Treasurer Wayne Swan telling News Ltd: "Prices for our commodity exports are still at generational highs and ongoing demand from emerging economies give us some cause for optimism, despite slowing global growth."

Treasury believes the continuing strength of iron ore and coal markets suggests the boom retains some strength.

However, the simultaneous shifts in currency and commodity markets indicate financial markets now expect a worldwide slowdown over the year ahead.

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What disturbs me most is the degree to which governments hang their hats on one or another bubble continuing ad infinitum.

Here in Britain it's been house prices and the belief of government that this will continue on in perpetuity, that have underpinned the whole economy.

A dangerous and ultimately deleterious folly.

Wayne Swine (and cross party imbeciles) pins their political and economic fortunes on the commodity superbubble continuing, and the further development of Oz as an open cut mine.

That is unforgivably stupid. IF commodities are taken out by a world recession, Oz is going to take in the rear.

Now that the Olympic farce is all but over, things get very interesting.

Opportunities have been totally squandered.

CanOz said:

Allot of this weakness in commods is USD strength too, don't forget that.

Don't worry, it won't last forever.

CanOz

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Or is it - A lot of the USD strength is commodity weakness?

I've heard a case made for that too. (Me? I wouldn't have a clue!)

wayneL said:

What disturbs me most is the degree to which governments hang their hats on one or another bubble continuing ad infinitum.

Here in Britain it's been house prices and the belief of government that this will continue on in perpetuity, that have underpinned the whole economy.

A dangerous and ultimately deleterious folly.

Wayne Swine (and cross party imbeciles) pins their political and economic fortunes on the commodity superbubble continuing, and the further development of Oz as an open cut mine.

That is unforgivably stupid. IF commodities are taken out by a world recession, Oz is going to take in the rear.

Now that the Olympic farce is all but over, things get very interesting.

Opportunities have been totally squandered.

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Cant' agree, not that I could agree with Swain and the Dud team either.

The big problems financially are with UK, US, Ireland, Spain and Aus due to sub-prime and now prime. Expanding within themselves and without the need of those just mentioned is the Chindia industrial/techno revolution. They are thinking forward and smart too. Alternative energy will be on the agenda so that it can be achieved and the need for some commods. such as copper, zinc, uranium and ion ore will be very great.

Inflation will go up in this bloch also which will bring about some parity in labour costs with Australia. This in turn will see an about turn in our manufacturing industries and because we are Johhny on the spot with raw materials other secondary industries of refinement will arise.

Many water problems will also be solved, expensive crops such as rice will be dropped and food will be on the agenda.

A long way away there in the UK where things are looking grim, but where I sit there is a great future picture for Australia.

Note today that Lehman Bothers now admitting to a 2 trillion problem as against 300 billion three weeks ago.

And also that the US have been buying up thier dollars over the last few weeks to bring up the value and suppress the inevitable for a bit longer, so unwittingly or not, it will be getting China off the hook perhaps.

We live in interesting times

I can't see the need for coal diminishing over the next 5 years in either South Africa or China as well

explod said:

Cant' agree, not that I could agree with Swain and the Dud team either.

The big problems financially are with UK, US, Ireland, Spain and Aus due to sub-prime and now prime. Expanding within themselves and without the need of those just mentioned is the Chindia industrial/techno revolution. They are thinking forward and smart too. Alternative energy will be on the agenda so that it can be achieved and the need for some commods. such as copper, zinc, uranium and ion ore will be very great.

Inflation will go up in this bloch also which will bring about some parity in labour costs with Australia. This in turn will see an about turn in our manufacturing industries and because we are Johhny on the spot with raw materials other secondary industries of refinement will arise.

Many water problems will also be solved, expensive crops such as rice will be dropped and food will be on the agenda.

A long way away there in the UK where things are looking grim, but where I sit there is a great future picture for Australia.

Note today that Lehman Bothers now admitting to a 2 trillion problem as against 300 billion three weeks ago.

And also that the US have been buying up thier dollars over the last few weeks to bring up the value and suppress the inevitable for a bit longer, so unwittingly or not, it will be getting China off the hook perhaps.

We live in interesting times

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I think you're trying to run with hares and hunt with the hounds there explod.

Totally agree re reasons for probs in western economies, viz, sub-prime etc. But sub-prime was just a symptom not a cause. The cause was credit expansion. Credit expansion causes investment and more significantly at the moment, mal-investment. Much investment with seemingly may be prudent at the moment and servicing current demand, will prove to be mal-investment, as current demand is caused by credit expansion.

During expansionary times it seems like a virtuous circle, but as credit contracts, much of the virtuous circle becomes a viscous circle.

Ergo, much development in BRIC economies will turn out to be over-development. The BRIC economies have not learned from the follies of the west and are doomed to repeat the boom-bust cycle as per classic Austrian economic theory.

China et al will continue to develop over the long term, that seems to be set in stone. But in no way will they avoid the classic busts along the way. They aren't doing anything different to what we dis. They are us, they aren't smarter, they just talk funny.

But this is all talk. The job of the investor is to hedge themselves and have strategies for any eventuality, otherwise you're just punting. One thing we humans must realize about ourselves is that we are all cognitively biased.

The worst bias is the "bias blind spot" ( a refusal to accept that we are biased). So I will try to have a strategy for any eventuality, otherwise I'm just that punter looking to get lucky.

wayneL said:

I think you're trying to run with hares and hunt with the hounds there explod.

The worst bias is the "bias blind spot" ( a refusal to accept that we are biased). So I will try to have a strategy for any eventuality, otherwise I'm just that punter looking to get lucky.

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It has been well said many times that "Necessity is the Mother of invention"

The pickles of the planet are no longer lost on anyone, we are a global villiage. The mistakes of the West yielded a fantastic drunken spree of expansion and money. Yes history repeats but in the meantime the Australian quarry will have a great time during the Chindia party which will at least run for the next decade. IMHO

It may be over for the next couple of years, however if we are to believe in the "supercycle" theory that is presented, driven by China & India, we may only be 20-30 years into something like the Industrial Revolution. Large call, but there are some similarities. Not sure whether such a comparison is valid or not.

One of the things that drove the industrial revolution was great new innovation which drove further innovation, and further growth, and was self-perpetuating. I am not quite sure how much China is innovating as of yet, rather than simply imitating Western methods, but I think they are starting to make moves into this area.

However maybe the world (environmentally) is unable to cope with such a large expansion again.

Anyhow, for interest's sake..

So if i'm lead to believe the boom is busting, then i got into the market (resource) at the wrong time. I started playing in late April mainly dtrading the banks, did ok and met my goals. But from late June i started throwing money at the resources and have suffered ever since. I used to make a sucessful profit every 3 to 4 days, now i havent sold for profit for a few weeks and my holdings look sad. Was hoping it was a blimp but i get the feeling it's not. I don't know a great deal about cycles but i feel i just jumped in on a waterfall. SBM , CFE, LGL (to name a few), and then some hard core speccies and all of a sudden i feel like a game of golf or 2 some i can whack the crap out of something.

Never mind. At least i have ample supply of Atacand.

"Commodity booms end ugly, they always do, and there has never been an exception," Access Economics director Chris Richardson told the newspaper.

The falls follow a fundamental shift in financial flows as investors prepare for a global slowdown, News Ltd reports.

"The speed and weight of money behind this move has been quite breathtaking," ANZ foreign exchange strategist Tony Morriss said.

http://smallbusiness.theage.com.au/growing/finance/fear-over-resources-boom-907256442.html

BHP seems to think we should be long and strong commodities

BHP profit up 15%

BHP Billiton, the world's largest mining company, has reported a record annual profit and says it expects demand for commodities to remain strong.

Net profit for the year ended June 30 climbed 14.7% to $US15.39 billion ($A17.6 billion), from $US13.416 billion in the previous year.

The result was in line with analysts' forecasts and underpinned by higher production and prices for oil, copper, iron ore, coal and manganese.

Underlying profit, or earnings before interest and tax (EBIT), was $US24.28 billion ($A28.09 billion), up 21%.

BHP Billiton is reaping the rewards from the rapid urbanisation of China and other developing nations that has been driving up demand for commodities and their prices for the past seven years.

Revenue for the 2007/08 financial year is 25.3% higher at $US59.47 billion ($A68.79 billion).

BHP Billiton declared a final dividend of 41 US cents per share, taking the total for the year to 70 US cents, up 48.9% over the previous year.

BHP Billiton's petroleum division, the key differentiator between it and takeover target Rio Tinto, was the second-biggest earner for the group.

Its underlying EBIT increased 82.1% to $US5.489 billion ($A6.35 billion) on record oil prices and higher production.

The company's base metals division was the biggest earner and delivered EBIT growth of 16.2% to $US7.989 billion ($A9.24 billion), after record annual copper output and stronger prices.

Underlying earnings from iron ore climbed 69.8% to $US4.63 billion ($A5.36 billion), while BHP Billiton's manganese business posted a 549.8% increase to $US1.64 billion ($A1.9 billion).

BHP Billiton said demand for its commodities is expected to "remain strong'' over the longer term, even though it sees global economic growth slowing in the short term.

Supply side pressures "remain high'', so commodity prices should to remain "high relative to historical levels'' in the short term, it said.

"The continuing massive industrialisation in China is providing solid support to the global economy,'' it said.

The company's costs increased 4.3%, or by $US1.18 billion ($A1.36 billion) during the year.

BHP Billiton said about $US575 million ($A665.12 million) was due to higher fuel, energy and raw material costs, while exchange rate movements had a negative impact on underlying earnings of $US1.13 billion ($A1.31 billion).

The company said strong global demand for resources continues to provide cost challenges for the whole industry.

BHP Billiton said its increased dividend for the year was a "strong signal of our confidence'' in its outlook.

"We have achieved another year of record earnings, driven by excellent operating performance, cost control and the delivery of high margin growth projects into strong market conditions,'' it said.

BHP Billiton said it had 28 projects in execution or feasibility studies worth about $US24.8 billion focused on high margin commodities that would create significant future value.

BHP Billiton is in the middle of a hostile takeover bid for Rio Tinto.

Its results were released today after the stock market had closed. BHP Billition shares closed up 62 cents at $38.60.

http://business.theage.com.au/business/bhp-profit-up-15-20080818-3xid.html

sam76 said:

BHP seems to think we should be long and strong commodities


Its results were released today after the stock market had closed. BHP Billition shares closed up 62 cents at $38.60.

http://business.theage.com.au/business/bhp-profit-up-15-20080818-3xid.html

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Yep this is one of my long term favs. Just the yellow cake alone for the longer term.

But, I think the stock market globally will smash everything down and in the next 8 to 12 months, pearls like BHP will be had for $20. Thats when I will sell some of my bullion perhaps.

Gee, so many still bullish does not bode well from a contrarian point of view

CanOz said:

Allot of this weakness in commods is USD strength too, don't forget that.

Don't worry, it won't last forever.

CanOz

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What US strength?!

They still have all the same problems they had a month ago

Dowdy said:

What US strength?!

They still have all the same problems they had a month ago

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Ahem!

I believe CanOz was referring to dollar strength

They certainly don't have the problem of the USDX being @ < 72c (atm anyway)