Commodities continue the surge

commodities precious metals and grain prices
With commodity prices showing some signs of peaking ahead of the end of QE2 by the US Federal reserve, Business RT spoke with Ole Slot Hansen, Senior Manager of the Trading Advisory Team, at Saxo Bank about the outlook.

­RT:  What is the outlook for all commodities when the US quantitative easing ends?

OH:  “The market has already now begun to guestimate what will be the effect of the cessation of QE2. Many believe if could bring about a major correction in commodities. We tend to disagree as negative real yields continue to make commodities look attractive. The level of global activity, MENA geopolitics and weather developments will continue to the main focus in the months ahead.”

RT:  Are outperformers such as silver likely to see significant falls?

OH: “Silver is being driven by increased industrial demand but more importantly by investor interest. The very strong momentum and investment flows currently seen could potentially drive silver to the old record high at 50 dollars from 1980 but we urge caution as silver if anything begins to show bubble like behavior. Once investment demand is met we could see the potential for a major setback.”

RT:  Why has silver outperformed gold and why has platinum underperformed?

OH: “Platinum does not carry the same investor interest being a much smaller market. Furthermore it is highly dependent on demand from the auto-industry. Recent tragic events in Japan has reduced the near term demand and triggered a sell off which it has only just about recovered from.”

RT:  What is the outlook for precious metals between now and the end of the year?

OH: “We favour gold over silver given the increased volatility in silver and also given the strong outperformance over the past year. Gold could reach $1500 followed by potentially $1550 while silver could retrace back towards the mid thirties.”

RT:   Are recent Chinese moves to slow their economy likely to have a significant impact on commodity demand?

OH: “It has the potential for making an impact given that China consumes a very high percentage of copper, aluminium, steel and iron ore.  So far we have seen signs of copper demand being reduced taking some of the pressure of a metal where previous a large deficit for 2011 had been expected.  It's a development worth keeping an eye on in the months ahead given Chinas increased importance as a market mover.”

RT:   Have global supply demand balances (for almost all commodities) become obscured by the low interest rates and increased speculation in commodities?

OH: “Yes to a certain extent, especially in oil, gold, silver, corn and natural gas.”

RT:   As a major commodities exporter can Russia expect favourable terms of trade over the longer term?

OH: “Elevated energy prices will stick for the coming years and as such should be very supportive for the Russian exports and the economy as a whole.”

RT:   How important is it for global grain prices, that Russia resume grain exports as soon as possible?

OH: “It would help remove some of the fear about food shocks as it would help bring global stock levels back to a more comfortable level, especially for wheat.”

RT:    Has Russia’s grain export ban sent the wrong signal to domestic producers?

OH:  “Difficult to say but it has obviously left a lot of previous buyers suspicious about future contract negotiations. Russia’s reputation as a steady supplier will have to be rebuilt.”