Commodities Overview
After recording significant gains last week commodities prices may consolidate at new elevated levels during this shortened trading week. On Monday 6 September markets in the United States will be closed in observation of Labor Day.
Economic data from the United States can give mixed signals. Releases related to consumption continue to reveal sluggish demand. Meanwhile, data gauging output paints a more positive picture of the economy. The economic recovery, thus far, largely lies with producers.
A series of positive economic data reports related to output in the United States and China helped foster a 293 basis point run-up in the Dow Jones Industrial Average over the course of last week. The purchasing managers’ indices from both these countries revealed month-on-month expansion in manufacturing that surprised the market.
With a thin economic reporting schedule this week, the upward momentum in commodities prices may lose steam. Data on housing and retail sales expected later this month may bring economic concerns back to the forefront. In the interim, however, precious metals and crude oil may trade in a sideways fashion this week.
Crude Oil
WTI oil may trade between $71 and $77 this week. Early last week concerns that slowing economic growth in the United States could suppress crude oil demand in the second half of this year weighed on oil prices.
Prices pared their losses later in the week as better than expected United States manufacturing data reversed this negative investor sentiment. Prices also were buoyed by the explosion of an oil rig in the Gulf of Mexico.
Although the rig was under maintenance at the time of the explosion and not producing crude oil, the incident raised concerns that tighter offshore drilling regulations in the United States could dampen future oil exploration and production. If oil prices head higher they are likely to be met with profit-taking at around $77.
Forward spreads indicate that near term demand is easing, although expectations are for a jump in end-use later this year. As refiners undergo fall maintenance in September and October, demand for crude oil is expected to weaken. This may push prices lower toward $71.
Gold
Gold prices are expected to move between $1,230 and $1,260 this week. Prices are likely to stick to the upper end of this range. If prices dip below $1,230 there is a possibility that prices slip toward $1,210.
Positive economic reports last week are expected to weigh on the price of gold. Investors remain concerned regarding economic growth going forward, however. As a result, decline in prices is expected to attract significant investor buying.
A decline in prices toward the lower end of the above stated ranges is also expected to stimulate jewelry demand from India. A string of festivals over the next couple of months typically results in increased gold buying in India. Any weakness in prices is expected to push this demand higher.
The monsoons have also been favorable in India this year which is expected to boost farm output and farmer income. Farmers in India typically convert a significant amount of their savings into gold.
Silver
Silver prices are likely to move between $19 and $20.50 this week. Silver fabrication demand is expected to benefit from the strength in global manufacturing activity. Global semiconductor sales reached $25.2 billion in July, up 1.2% from June and 37% year-on-year, according to the Semiconductor Industry Association.
Silver is used in the fabrication of semiconductors. Rising demand for laptops and cell phones in Asia is expected to result in healthy demand for semiconductors going forward. Additionally, investors have remained keenly interested in silver because the price of the metal benefits from both turbulence in the global economy (investors purchase silver as a safe haven) and from the increase in fabrication demand.
Combined silver exchange traded fund holdings reached 496.97 million ounces on 2 September, a record high. Investors added around three million ounces of silver to their ETF holdings between 27 August and 2 September.
Since the beginning of this year through 2 September investors have added 32.1 million ounces to their holdings. Delivery of silver through Comex reached 3.5 million ounces in the active September delivery period as of 2 September.
