Commodities Corner: Flight to Quality Grounded

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Gold was weak, but managed to remain above the $US1800 an ounce level by Friday’s close, copper and silver also eased over the week, but surprise, surprise, iron ore rose for the first time in quite a few weeks.

Comex gold for December delivery fell $US9.80 or 0.53%, to close at $US1,851.6 dollars an ounce. That saw it lose 0.9% for the week.

Gold fell in after-hours trading to around $US1,846 an ounce as the US dollar edged higher (and the Aussie fell to around 72,35 an ounce, down 1.3% for the week.

Comex silver for December delivery fell 11.9 cents, or 0.5%, to close at $US24.781 dollars an ounce and Comex copper dipped 1.05% for the week, ending at $US4.4085 a pound on Friday.

The rise in the greenback weighed on the industrial metals segment, which, like oil, fell as well (see separate story).

In fact oil’s slide and the new worries about Covid infections in Europe has blurred the outlook for gold which was going on a bit of a run because of inflation.

While those cost pressure fears remain, memories of the damage the autumn and winter Covid surges a year ago did to gold prices are still fresh in the minds of many traders.

Gold peaked in August 2020 at more than $US2,028 an ounce and bottomed out in February of this year at $US1,698 an ounce.

Until the past week or so, it had trouble holding above $US1,800 an ounce but the higher inflation readings for the US, China and the UK seemed to have convinced traders that there were gains to be made.

But just as that confidence was returning, up went Covid infection rates, more lockdowns and protests across Europe, in Australia and parts of the US.

That is switching attention back to central banks – this week will see the focus on central banks in NZ and South Korea which are both expected to lift their key interest rates. Those decisions will be enough to give gold a kick higher.

But then there’s the question of the new Fed chair with President Biden said to be very close on announcing a decision. It’s between current chair, Jay Powell and senior governor, Lael Brainard.

If Powell is renominated, gold will not do much – he is the market’s known known. But if Brainard is chosen – she’s the unknown unknown, then short term bond yields will rise, gold will get a support on (as well as silver) and markets will rattle around until some certainty emerges.

In soft commodities, lumber is back in the news. The floods in western Canada are blocking the flow of lumber (timber) to the United States, which caused the price of building materials to soar by nearly 40% in five days.

Timber prices had soared in 2020 and early this year because Covid and trade barriers had cut the amount of wood exported into the US by more efficient Canadian producers.

As Covid eased, prices tumbled, but the cost of other building products, as well as energy soared as demand for new houses boomed.

The futures price soared last week by more than 30% after heavy rains and flood in western Canada cut production and exports of lumber. The price jumped to more than $US800 a thousand board feet.

The price hasn’t been that high since early August when it was coming off record highs of nearly $US1,670 a thousand broad feet.

Iron ore ended the week higher than the previous Friday with the price of the benchmark 62% Fe fines from the Pilbara ending Friday at $US91.69, up $US2 a tonne over a rough week.

China’s production and emission restrictions remain a major cause of the weakness.