Commodities: Gold at 5-year lows in Europe, metals and oil post declines

The commodities market entered an intraday bear run in Europe on Monday, with major futures contracts dragged lower by gold falling to a five-year low as Chinese investors shed the precious metal in record volumes.

Earlier in the day, spot gold shed $45.55 to $1,088.05 an ounce - its weakest level since March 2010 - barely minutes after the Shanghai Gold Exchange opened. Reuters closing data for the exchange indicated that over 3m lots had been traded compared to just 27,000 lots at the end of the session on Friday. Short-selling also took place in Singapore.

However, by 1345 BST on Monday, COMEX gold for August delivery recovered to $1,110.30 an ounce, though still down 1.19% or $21.60 in relative terms, while spot gold was down 1.99% or $22.61 at $1,111.53.

With US Federal Reserve Chairwoman Janet Yellen hinting that an interest rate rise would take place at some point this year, most traders felt gold was losing its sheen. Guy Foster, group head of research at Brewin Dolphin, said, “The sell side callers are looking for explanations and potentially tying the move to the reporting of Chinese foreign exchange reserves, which are very largely held in financial assets rather than gold.”

“We have two schools of thought on what drives gold prices. One, of course, is the real interest rate story - as rates rise the opportunity cost of holding gold rises and so the price falls.”

“Alternatively there is a simple Dow Theory explanation which is that with industrial use so low, the sentiment around the stock matters most. Therefore there are distinct phases of the gold market cycle which mark its secular trend. The latest is that sentiment is breaking down and the asset class is over owned leading to a prolonged distribution phase as investors slowly capitulate.”

Foster opined that gold was the ultimate greater fool asset. “The only reason anyone will buy it is because they think they can sell it to someone else for more. Sometimes the best way of forecasting a price is to draw a straight line – on that basis could the price be $1,080 by year end? Quite possibly.”

Other precious metals also faltered with COMEX silver down 1.04% or 15 cents at $14.68 an ounce, while spot platinum continued down an oversupply driven spiral shedding $6.21 or 0.62% to $988.04 an ounce.

Industrial metals slipped as well, with major contracts on the London Metal Exchange firmly in the red. Past the midway point of the session, three-month delivery contracts of primary aluminium (down 1.2%), copper (down 0.8%), lead (down 1.6%), nickel (broadly flat), tin (down 1.4%) and zinc (down 1.4%) were all trading down.

Meanwhile, oil benchmarks continued to falter. At 1430 BST, the Brent front month futures contract was down 0.72% or 41 cents at $56.69 a barrel, while the WTI was down 0.49% or 25 cents at $50.64 as oversupply and Chinese demand concerns continued to lurk around.

Finally, agricultural commodities completed the wider market rout, with major contracts in the red. CBOT corn (down 2.09%), wheat (down 2.08%), ICE cocoa (down 0.78%), cotton (down 0.08%) and CME live cattle (down 0.20%) were all in negative territory.