Commodities Focus: This is what's really driving gold prices

by from interactive investor |

Industry analyst Rajan Dhall discusses where investors should expect oil, gold and copper prices to move this week.

Key themes still persist in the commodities markets, but gold's demise has to be the biggest story. The precious metal has been falling in times when you would think physical real-value assets would be in high demand. 

The situation in Turkey is still pretty volatile and analysts have been saying that some of the selling in gold has come from the Turkish central bank trying to buy back Lira to stem the losses in the currency. 

We also heard from financial media that Turkey is allowing FX swaps to be made with gold at the Bank of England, where it is believed to have some reserves. 

The fall has been impacting gold producers hard; the likes of Randgold Resources Ltd and Fresnillo have been falling in line with the yellow metal, although at the start of this week we have seen some support at the lows. 

Across the pond, the performance of the US economy continues (effectively) to hit metals hard. The US dollar continues to strengthen as emerging market flows head to US paper (Treasuries) in a bid to repatriate from risk. 

The South African rand, Turkish lira, Brazilian real, and Mexican peso have all been struggling against the greenback, and now it's just a waiting game to see if the Fed will raise rates again at the next meeting. 

GDP and CPI are both where the US would want at this time, but wage inflation seems to be the constant thorn in the side of central banks around the world. Odds of a September rate hike stand at around 90% according to the futures market, so could we assume all the good US news is priced in?

Past performance is not a guide to future performance

Copper's demise was compounded by BHP Billiton striking a deal with the Chilean miners from Escondida last week. The industrial metal has had to deal with some strong fundamental depressors of late and the additional supply seemed to be the nail in the coffin for the $2.65/lb support level. 

It seems global demand is robust as, after the initial fall prices, copper recovered just below the touted value area to shoot back up and hold right in the middle of the previous consolidation point. 

The level between $2.60-70/lb proved to be a strong sticking area back in late 2016 to early 2017 and we may find a base here. 

This week discussions start between the two world superpowers America and China over the recent trade spat between the two nations. It's difficult to forecast how this one will play out, though sentiment tends to err on the side of optimism when watching the equity markets! 

Past performance is not a guide to future performance

Lastly, oil markets have been dealing with higher inventory levels all over the world. Last week’s Department of Energy and API inventory data showed a build in both. 

Interestingly, in the past, OPEC delegates from major nations have expressed that $70/bbl would be a comfortable area for them, and we now seem to be oscillating around here. 

With OPEC agreeing to slowly increase production, we now may have found a longer term mean price level to hang on to. 

Elsewhere, tensions between Iran and the US are naturally a key driver of price. Verbal exchanges have calmed between the two following the fallout from the nuclear deal so, with China increasing shipments from Iran, it would be prudent not to rock the boat. 

The only concern in this regard would be if the US asks China to stop importing oil from Iran as part of an arrangement in the upcoming trade negotiations. 

Past performance is not a guide to future performance

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