Commodities: Gold and Oil Have Stories To Tell As Well

Gold and oil both finished a difficult week down at the close on Friday for differing reasons.

Gold dropped 1.5%, falling further from the previous session's record highs, as frightened investors quickly found their appetite for riskier investments and stockmarkets generally had a calmer and more positive day of trading.

Oil lost more ground for a third week at the close on Friday as investors remain unconvinced about the outlook for the world's major economies.

Other commodities ended the week mixed to stronger, especially wheat and copper.

Gold fell as markets rebounded on the back of the short selling bann on European financial stocks which started on Friday.

US government bonds were strong, despite the S&P credit rating downgrade.

The Financial Times reported that global investors pulled $US50 billion of funds from shares and bonds and invested in so-called money market funds (which have to invest in bonds and other securities, or leave their money with the Fed or other central banks to earn a small rate of interest).

Gold benefited early on from this nervousness, with reports that investors pushed more cash into them metal earlier in the week, but by Thursday there were reports of liquidations from big exchange traded funds that invest in gold.

Despite Friday's price fall, gold ended the week up nearly 5%, the biggest weekly rise since early November.

Spot gold was down 1.4% to $US1,741.61 an ounce in New York, after reaching a day's low of $US1,722.94.

Comex December gold futures closed down $US8.90 at $1,742.60 an ounce.

Gold was up as much as $US150 an ounce last week and hit a record $1,813.79 in early trading on Thursday.

The CME Group's 22% hike in futures trading margins for the metal helped push investors out of gold.

After last week's frenetic trading, Deutsche Bank is looking for gold to ease in the short term, but be higher in 2012.

The bank's most recent forecasts are $US1,630 for the third quarter (down 1.2% from prior forecast), $US1,750 for the fourth quarter (steady) and the same for the first quarter of next year (down 5.4%). The bank looks for $US2,000 gold in the third and fourth quarters of 2012.

Reuters reported that "on Thursday, the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, reported its biggest one-day outflow since January 25, with its holdings declining by 23.6 tonnes, worth some $US1.3 billion at current prices. Analysts cited profit taking by ETF investors."

Reuters also noted that the market is very interested in what US billionaire financier John Paulson, the biggest owner of SPDR Gold Trust units, has done with that investment. His Paulson & Co. hedge fund firm's assets have fallen in August, thanks to the fall in the stockmarkets.

Oil prices saw a tiny one cent rise in the price of Brent crude in London on Friday, but prices of West Texas Intermediate fell in New York, meaning the respective futures contracts lost ground for a third straight week.

London Brent September crude rose a cent to end the week at $US108.03 a barrel.

The close left it with a loss of 1.3% for the week, but it ended more than $US9 a barrel up on its low for the week of $US98.74.

Nymex WTI September crude fell 34 cents to close at $US85.38 a barrel.

It lost 1.7% for the week and hit a low of $US75.71 a barrel during the hectic treading mid-week.

Reuters reported that investors "cut their net-long U.S. crude futures and options positions to the lowest in over eight months in the week to Tuesday, the Commodity Futures Trading Commission said in a report released after oil futures settled.'

That's a bearish sign for the short term.

Like equities, copper ended the week with a minor charge on Thursday and Friday, but still ended the week lower.

Comex copper futures for September delivery rose 0.1%, to close at $US4.0335 a pound in New York on Friday after a 3% rise on Thursday.

But it still ended the week down 2%.

On the London Metal Exchange three month copper fell $US16, or 0.2%, to $US8,865 a metric ton ($US4.02 a pound), after being up 1% in earlier trading.

Barclays remains confident about the outlook for the red metal.

It said this week there were signs that the recent price pullback in base metals is attracting consumer buying, especially from all important Chinese buyers.

Tin rose in London but aluminium, lead, nickel and zinc prices fell on Friday and were weaker over the week.

And while all the manic market action was happening in shares, copper, gold and oil, there are signs that the grains sector is heading higher with another gloomy report on America's spring and summer harvests.

Bloomberg reported that production of the spring crop may total 522 million bushels, down from 550.7 million estimated in July and 616 million last year, the U.S. Department of Agriculture said in a report.

The USDA also cut its US corn-output forecast, boosting prospects that livestock-feed supplies will tighten and prices will rise into the back half of this year.

As a result, wheat rose, 9 cents, or 1.2%, to $US7.42 a bushel on the Chicago Board of Trade. Wheat prices are around 2% higher over the past year.

And raw sugar prices fell on Friday in New York, ending a small rally.

Sugar for October delivery fell 0.9%, to settle at 27.84 US cents a pound. In London, refined white sugar futures for October delivery fell 0.8%, to $US743.50 a tonne.

Raw sugar prices rose 1.1% last week in New York.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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