A strong and persistent trend is taking place in commodities, a July 31 report from Capital Economics notes, and nothing is likely to change the “current malaise,” and this includes what is expected to be strong economic data released this Friday in the u.s. unemployment report.
As Capital Economics sees further job losses in both the oil industry as well as South Africa's mining industry, a Bloomberg study coalesces with the commodity price trend. It notes a study of 16 key traders and analysts that point to continuing drop in the price of precious metals.
Oil commodity prices not just a victim of more supply
While many analysts have fixated on the increase in oil supply as a reason for the downdraft – initially the significant speculation was that U.S. shale production was the culprit, and more recently “the looming return of exports from Iran” have been credited with a faltering price of oil, there is another factor, Capital Economics notes. With the price of WTI Crude oil futures trading at $45.83 today, down from near $61 as recent as June 15, a bigger issue with oil's price decline could be overall commodity momentum.
“Prices are likely to continue to be more influenced by sentiment towards commodities in general and by developments in China in particular,” the report noted, saying the possibility of a strong El Nino event this winter, ushering in higher temperatures, could lower demand for heating oil. That said, the El Nino impact is likely to have a “negligible” impact on prices despite the lowered demand as falling output and demand outside the U.S. could offset the weather effect in 2016.
Capital Economics Commodities: Precious metals weak but signs of strength ahead
Weakness in Mainland China's gold imports from Hong Kong and Switzerland are a confirmed commodity trend, to a degree, by falling imports from India. The primary gold buying countries are weighing on prices but could see a pickup in the second half of the year as gold on sale could stimulate “a fresh wave of buying” in the Asian region.
