AP: Commodities fall short term but keep long term shine
SINGAPORE : Commodities prices have taken a hit in recent weeks, tracking the turbulence that has rocked financial markets.
Copper prices have fallen some 40 per cent while oil slipped 30 per cent in the wake of the Lehman Brothers collapse in September.
Analysts have become more pessimistic of the sector's outlook.
Commodities were popular with investors in the first half of this year - with gold reaching all-time highs and breaking the US$1,000 mark, and oil approaching US$150 a barrel.
But things changed after July when fears of an economic slowdown and financial crisis began to spread around the world.
Gold has recorded its biggest monthly decline since 1983 - down 17 per cent in October and hovering near US$720 per ounce.
Oil fell by over 50 per cent from its high earlier this year to around US$60 a barrel.
Industry watchers said a lack of demand and the financial crisis will continue to hit commodity prices across the board.
"I think the market remains slightly weaker because of what is happening in the financial markets, so people are more concerned about demand. The whole thing now is about demand destruction - how people will feel the pinch from the liquidity crisis and the credit squeeze, how people will start to trim what they have, so that will have an impact on the commodity prices," said Adrian Koh, Associate, Asian Commodities, Phillip Futures.
The price of grains has fallen 25 per cent since the fall of financial giants such as Lehman Brothers in September.
Grain prices are still expected to suffer in the short to medium term, but experts said gold will continue to shine as investors view it as a traditional safe haven for investment compared to other commodities.
"It's not inconceivable for gold to go back to its nominal all-time high, which was over US$1,000 per ounce, by the end of the year or Q1 next year," said Aaron Smith, MD of Superfund Financial.
In the short term, commodities are unlikely to escape the impact of the spiralling global economy. But many observers are still bullish about the sector as it is still relatively stable compared to volatile investments such as equities.
