Commodities: Weaker dollar boosts metals in 'best time for decades'
The weaker US dollar boosted metal and other commodity prices on Wednesday, after US treasury secretary Steve Mnuchin endorsed the weaker dollar in a panel at the World Economic Forum in Davos.
The London Metal Exchange Index (LMEX) jumped 2.45% to 3,436.1, to the highest level since February 2013.
Three-month LME copper futures rallied 3.28% to $7’150.00 per ton and three-month nickel futures advanced to $3’440 for a gain of 0.82%.
Jeffrey Currie, global head of commodities at Goldman Sachs said, "this is the best time in decades to own commodities".
The combination of reflation, reconvergence of global growth and releveraging offers a ‘really strong macro backdrop’ according to Jeffrey. He said there is also "a benefit to buying and holding a broad range of commodities, known as positive carry, for the first time in years" and added that "the long-term picture for metals is stronger than for energy commodities".
Oil prices rose on the back of a weaker US dollar and lower US crude stockpiles.
The EIA report showed on Wednesday that the US crude inventories fell by 1.1 million barrels. This is the tenth consecutive week drop.
Though the drop in inventories was slightly less than analyst expectations, there has been a relief after the API data posted a surprise 4.76-million-barrel rise in US inventories a day earlier.
‘Oil surplus is still being reduced on a weekly basis and demand exceeds supply even with shale growth’ commented Russia’s Energy Minister Alexander Novak at the World Economic Forum in Davos.
West Texas Intermediate futures climbed by 1.04% to $66.29 per barrel on Thursday, to the highest level since December 2014. Brent crude futures advanced 0.65% to $71 per barrel for the first time in three years.
Meanwhile, gold added 25 dollars to $1’365 since Wednesday, "breaching its first resistance at $1,357/oz," commented Lea Torbey, senior investment advisor at Audi Private Bank.
Traditionally, the depreciation in the US dollar increases demand in USD-based commodities, as they become cheaper in terms of other currencies. Also, higher US yields decrease the opportunity cost of holding non-interest-bearing gold and so, increases the yellow metal’s attractiveness in investors’ eyes.
"While the move opens the way to 2016 high of $1,375, I suspect that the US dollar will eventually have to correct higher ahead of the Fed meeting next week, where members will be faced with above 2% inflation expectations," said Torbey.