The tumbling dollar and hopes of a further boost to the global economy drove commodity prices higher, sending the Bloomberg Commodity index to a two-year high and extending gains since mid-December to 10 per cent.
Comments by Steven Mnuchin, the US Treasury secretary, that a weaker dollar was “good for trade” added to the bullish sentiment in raw materials, sending oil, gold and metals to multiyear highs.
Confidence also spread to agricultural commodities, which have hitherto struggled under the weight of bumper crops over the past few years. With the dollar index at its lowest level since December 2014, commodities analysts said they were keeping a careful watch on the greenback.
“We continue to closely monitor the dollar — the US Treasury secretary has re-introduced the concept of currency wars in the trading psychology,” Olivier Jakob at oil consultancy Petromatrix said.
The currency-led buying of raw materials added to the rally that has come on the back of global economic growth. “The solid momentum in the global manufacturing sector has been a key driver in base metal prices in particular,” Edmund Shing, equity and derivatives strategist at BNP Paribas, said, adding that the overall commodities index had also been helped by particularly cold weather in the US.
Crude prices hit three-year highs, with Brent, the international marker, rising above $71 a barrel for the first time since late 2014, and West Texas Intermediate, its US counterpart, trading at $66.22. Brent has been propelled by the oil production cuts by Opec and Russia, and has jumped almost 50 per cent since mid-2017.
While there have been concerns that higher oil prices would trigger a rush of US shale groups to increase production, in Davos this week Saudi Arabia’s oil minister Khalid al-Falih dismissed such concerns.
Referring to a recent report from the International Energy Agency, he said that despite the focus on the impact of US shale growth on the oil market, it was “not going to wreck the train”.
US oil prices were helped by a sharp drop in inventories at the WTI’s delivery point in Cushing, Oklahoma, with stocks falling sharply following the ramp up of a new pipeline taking crude from the storage hub to Tennessee.
Gold rose to its highest level since August 2016 on Thursday, trading above $1,366 a troy ounce. The precious metal has gained more than 10 per cent since mid-December.
“The dollar’s demise has reinvigorated speculative flows into precious metals,” analysts at ING said. Industrial metals gained ground, with the broad London Metal Exchange index of six metals rising 2.5 per cent to a five-year high.
Prices for nickel climbed to their highest level since May 2015 at $13,715 a tonne, while copper inched up to $7,161 a tonne. Metals have been supported by accelerating global economic growth, hopes of increasing infrastructure spending and demand from batteries to power electric cars.
Commerzbank said currency movements were behind the latest rally. “The weak US dollar has got metals prices firing on all cylinders,” said the bank.
Source: FT.com
