Gold, Oil, and Platinum Hit Record Highs

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Gold, Oil, and Platinum Hit Record Highs

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The markets decided to ring in the New Year with new highs in gold, oil and platinum. Here’s the story from the Financial Times:

Gold and oil break new records

By Chris Flood and Javier Blas in London

Published: January 2 2008 12:15 | Last updated: January 2 2008 18:54

Commodity markets made a flying start to 2008 with gold, oil and
platinum setting records during the first trading session of the new
year.

Gold led the initial advance, rising 3.3 per cent to $861.10 a troy
ounce, surpassing the previous high of $850 reached in January 1980.
The metal later eased back to $858.10 in late London trading.

Traders said there was consistent selling pressure on gold in
December as investors booked profits before the year-end, but that drag
had cleared and yesterday’s price rise indicated the strength of
underlying sentiment.

Gold also found support from renewed dollar weakness after the
influential ISM manufacturing survey indicated that industrial activity
contracted in December, fuelling fears that the US economy could be
dragged into recession as weakness in the housing market spreads into
other sectors.

Gold’s strength spilled over into platinum, which rose 1.6 per cent to $1,544 a troy ounce.

Oil hit the key $100 level, partly because of violence in Nigeria,
which raised concerns about further possible supply interruptions from
the world’s eighth largest crude exporter.

Nymex February West Texas Intermediate jumped $4.102 to $100 a
barrel, passing the previous high of $99.29 reached in November.
Dealers said there was a single trade at $100 between two Nymex floor
traders, possible the result of a bet.

ICE February Brent leapt $3.89 to $97.74 a barrel, a contract record.

Due to the new year holiday, the latest US inventories data are due
for release on Thursday and traders expect to see further evidence that
the market is tightening.

Crude inventories were expected to have fallen 1.8m barrels in a
seventh consecutive weekly decline, according to a preliminary poll of
analysts by Reuters.

Distillate stocks (including heating oil) were forecast to have
risen by 0.3m barrels. Heating oil stocks stand 34.5 per cent below
last year’s levels, and with colder weather expected in parts of the
US, Nymex February heating oil rose 8.8 cents to $2.7375 a gallon, a
record.

Nymex February RBOB gasoline added 7.7 cents at $2.5675 a gallon,
with gasoline inventories expected to increase by 1.8m barrels in
today’s report.

Agricultural commodities made a strong start to 2008, finding
support from further evidence of strong demand from key consuming
countries and recent moves by Russia and China to increase taxes on
grain exports to bolster domestic supplies.

Russia will raise the tax on grain exports from 10 per cent to 40
per cent from January 29, a move that is expected to result in Russian
exporters rushing to secure business this month. China will impose
temporary taxes, ranging between 5 per cent and 25 per cent, on grain
exports for a year, starting later this month as part of government
efforts to curb soaring food prices.

In Chicago, CBOT March wheat rose 30 cents, its daily trading limit,
to $9.15 a bushel while CBOT March corn rose 12 cents to $4.67½ a
bushel and CBOT January soyabeans gained 43 cents to $12.42 a bushel.

Gavin Maguire, analyst at of Iowa Grain says US corn output may
decline in 2008 even though demand will continue to rise as some
farmers will return land to soyabean cultivation. “Even though corn
prices are starting the year at high prices by historic standards,
there could easily be a lot more gains to come,” said Mr Maguire.

A revised robusta coffee futures contract is to be listed by Liffe
from January 14. The new contract will encompass a broader range of
qualities from all origins in a new 10-tonne lot size. The first
futures delivery month for the revised contract will be November 2008.

Liffe January robusta coffee rose $37 to $1,903 a tonne.

Investors in commodity markets enjoyed strong returns in 2007,
outperforming both global equities and global bond markets and analysts
expect to see new money flowing into the complex in 2008.

The total return on the S&P GSCI commodity index in 2007 was
32.7 per cent, its best year since 2001. The S&P GSCI commodity
index which is the most benchmark with the most funds following it has
a higher weighting for energy than the Dow Jones AIG commodity index
which returned 16.2 per cent, its best year since 2006.

The latest data on speculative positioning from the Commodity
Futures Trading Commission showed that in the approach to Christmas,
speculators increased net long positions (bets on further price gains)
across the entire commodities complex with the exceptions of natural
gas and palladium.

The net long position in crude oil jumped by 51.1 per cent to 52,847
lots in the week to December 24 when WTI reached $94.13 a barrel.

The speculative net long position on gold rose by 8.3 per cent to
184,375 lots while the net long on platinum increased 12.3 per cent.

From www.ft.com

This year will probably be tough for the stock market. It looks like
the market is going to favor commodities for the rest of the year over
equity. When I look at this type of market I personally get excited. It
should afford me and everyone else the opportunity to buy stocks with
good fundamentals for little money. Now is not the time for the average
trader to jump into the commodities market because, as the story above
tells, commodities are reaching all time highs (not inflation adjusted
highs mind you, but nominal highs).

People should start worrying about the strength of America’s economy
once politicians start contracting the money supply. Right now it looks
like the market is going through some bumps in the road but it will
correct itself in the next couple of years. BigT