Commodities endure mixed showing in August

Markets watched as losses in the metals complex racked up in August, despite a last minute rally at the end of the month.

Aluminium suffered its weakest performance since May 2010, while zinc was at its weakest since November 2010. The distinct lack of buying interest also saw nickel and tin drop as much as 15 per cent in just one month and ensured that the former suffered its largest decline for the year-to-date.

'These falls were driven by the weak demand backdrop for base metals, as current and expected consumption, both in developed markets and in China, remains subdued,' explained commodities economist Ross Strache at Capital Economics.

Analysts at Commerzbank said that the dominant view that China will continue its tightening of monetary policy, especially on account of persistently high inflation rates, has marred demand for this sector, adding that the move by the Brazilian central bank to lower interest rates has suggested that 'growth is also weakening in the emerging countries'.

Indeed, fear for the global economic recovery spurred losses in the oil market too. Despite hitting a monthly high of over $89 a barrel on 31 August, the commodity suffered a hard time of it.

Crude for October delivery finally settled at $88.81, resulting in a 7.2 per cent decrease for the month and marking its third decline in four months.

Its cards were marked from the outset, when it was faced with growing concerns about economic growth in the US after Standard & Poor's shocked the world by slashing the global superpower's prized AAA rating.

WTI crude oil dropped to as little as $84 a barrel, while Brent hovered around $105 ?€" a far cry from the two-and-a-half-year highs above $120 seen earlier this year.

While prices improved somewhat by the end of the month, the gap between Brent and WTI crude oil did not, instead widening to a new record.

'The record spreads between the price of Brent and that of other crudes suggests that the former still contains a substantial premium for the unrest in the Middle East. And while the price of WTI is undoubtedly being distorted downwards by logistical problems at the Cushing hub, its lower level is more representative of the weakness of US demand and the still-high levels of stocks,' Capital Economics said.

But while fears of US economic growth stung oil traders, gold watched its star shine.

The precious metal started and finished August strongly, notching up an impressive 12 per cent gain during the month and striking an all-time high of $1,911 an ounce on 23 August. As a result, the multi-year upward trend remains intact.

And despite the high prices, demand for the precious metal has remained very much prevalent. The US Mint increased its sales of American Eagle gold coins in August by a whopping 74 per cent month-on-month to 112,000 ounces ?€" its highest level since January.

Gold's surge last month meant that its price exceeded that of platinum for the first time in almost three years, albeit briefly.

And it's not just gold that's been shining brightly in the commodities complex. Four of the five commodities that racked up double-digit percentage growth during the summer month were agricultural, aided by reduced crop yield estimates from the US Department of Agriculture.

'The less economically sensitive agriculture sector was the best performing sector in August as adverse weather and reduced yield estimates prompted a 9.40 per cent monthly gain in the S&P GSCI Agriculture Index, reversing the year-to-date decline and producing a 3.34 per cent year-to-date gain,' said Michael McGlone, senior director commodities at S&P Indices.

Rice prices have risen sharply ahead of the introduction of a Thai government scheme to pay local farmers well above market rates, while the price of corn and wheat have both benefitted from lower crop forecasts in the US.

Corn futures climbed 15 per cent in August making it the second best performing commodity in the past year on the S&P's GSCI commodity index, with new crop December CBOT corn hitting a series a contract highs at the end of the month.

Meanwhile, soybeans have risen to their loftiest level since July 2008, as China revealed that its imports rose 24 per cent month-on-month in July and 8 per cent year-on-year.

'We remain positive on corn and soybean prices despite the recent rapid pace of gains,' said Barclays Capital analyst Susakshina Unnikrishnan. 'We recommend going long the December 2011 CBOT corn contract and the January 2012 CBOT soybean contract.'

Authors: Commodities - Yahoo! News Search Results

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