Commodity markets were hit this week in the run-up to Christmas, as hopes faded for a deal to avert the US’ “fiscal cliff” of tax rises and spending cuts that could send the world’s biggest economy spinning into recession, analysts said.
Unless the political deadlock in Washington is broken, the fiscal cliff measures will be implemented in the US — a major consumer of many raw materials — on Jan. 1.
“We think Thursday’s broad-based sell-off in commodity markets is a sign of things to come,” Capital Economics analyst John Higgins said.
“Three factors seem to have been responsible for Thursday’s sell-off; First, reports that negotiations over the US fiscal cliff have stalled. Second, an upward revision to Q3 US GDP growth, which may have altered perceptions of the likely duration of the [US] Federal Reserve’s quantitative easing. And third, good old-fashioned position-squaring ahead of the holidays,” Higgins added.
Commodity markets had won support last week after the US central bank launched more stimulus measures. However, data on Thursday showed that the US economy grew 3.1 percent in the third quarter, faster than previously estimated, dampening hopes of more stimulus.
OIL: Prices diverged this week, but saw steep losses on Friday as sentiment was rocked by intensifying concerns in top crude consumer the US.
Prices had rallied on Tuesday amid indications Washington was inching closer to resolving the budget impasse after US President Barack Obama met with US House of Representatives Speaker John Boehner in the latest effort to broker an agreement.
The market also rose on Wednesday following news of a decline in US petroleum inventories, which indicated strong demand.
Crude futures paused on Thursday, but dived by more than US$1 on Friday amid the political stalemate in Washington.
By Friday on the New York Mercantile Exchange, West Texas Intermediate (WTI), or light sweet crude, for delivery in February rose to US$88.40 per barrel from US$86.51 a week earlier for next month’s contract.
On London’s Intercontinental Exchange, Brent North Sea crude for February dipped to US$108.88 a barrel from US$109.00 last week for next month’s contract.
PRECIOUS METALS: Gold struck its lowest level since August, hit also by profit-taking ahead of the year’s end, dragging other precious metals lower.
By late Friday on the London Bullion Market, gold slid to US$1,651.50 an ounce from US$1,696.25 a week earlier.
Silver dropped to US$29.89 an ounce from US$32.52.
On the London Platinum and Palladium Market, platinum declined to US$1,533 an ounce from US$1,613.
Palladium fell to US$675 an ounce from US$700.
COCOA: Prices registered more multi-month lows as sentiment was weighed down by rising supplies.
By Friday on LIFFE, London’s futures exchange, cocoa for delivery in March dropped to ￡1,471 a tonne from ￡1,543 a week earlier.
On New York’s NYBOT-ICE exchange, cocoa for March decreased to US$2,325 a tonne from US$2,432 a week earlier.