Speculation on commodities may have reached a point where a correction is imminent. As demand begins to erode from the pressure of high commodity costs, Goldman Sachs led the way and others followed by selling off commodities, which sent costs diving. Goldman wants to get out while the getting is good as soaring commodities costs have triggered inflation that has curbed demand.
The Goldman prediction
By the end of the day on Monday, April 11, there was an end to the advancement of commodity prices after they rose 25 percent just since December. There started to be a commodity rout after warnings on commodity price decreases from Goldman Sachs. There was also a warning from Japan’s economic minister that there would be more damage than believed from the earthquake and tsunami on March 11. Oil fell more than 7 percent and copper ended Tuesday with its largest one-day loss since February. There may be “demand destruction” from the high prices on oil which may end up staying long even though oil and gas are close to the Spring 2008 levels, states Goldman. Plus, relatively peaceful elections in Nigeria and a potential cease-fire in Libya, two major oil producing countries, have dampened the enthusiasm of speculators whose bets on fear and risk have been driving up commodity costs.
Hopefully we’ll get commodity prices back
Several are worried that Goldman started the commodities rout so that it could get in on the upward trend that is occurring and prepare. Goldman’s comments happened, however they were not the only thing. There has been lots of pressure on the prices for commodities. High oil costs could threaten the growth of the economy according to a report on Tuesday from the International Energy Agency. On Monday the International Monetary Fund projected that inflation borne by high commodity prices would slow global economic growth from 5 percent last year to 4.5 percent in 2011 and 2012. In his daily remarks to subscribers Tuesday, Richard Russell, publisher of the Dow Theory Letters, said the markets might be preparing for the end of the Federal Reserve’s quantitative easing program. The Feds purchase of $600 billion in Treasury securities has flooded the markets with cheap cash used by speculators to drive up commodity costs.
Do not forget about U.S. consumers
Goldman Sachs aside, there is another that makes a difference to the oil costs in the U.S. This is the consumer in the U.S. A MasterCard report released Monday showed that gasoline sales declined for the fifth consecutive week. Analysts expect the demand to increase as it did for a couple of months. However the average gas price in the U.S. is already 41 cents higher than the same period in 2008, when the average gasoline price peaked at $4.11 in July. Last week, there were 2.7 billion gallons of gasoline sold according to MasterCard which is 3.6 percent down from the same 2010 period when the price was down 80 cents. A survey was done by the Oil Price Information Service in March. It showed that of all gasoline station chains, there was a 70 percent decrease in service. Over half reported a big decline. This is defined as a decline of at least 3 percent.
Citations
Barrons
finance.yahoo.com/banking-budgeting/article/112536/commodities-selloff-possible-correction-barrons?mod=bb-budgeting&sec=topStories&pos=7&asset=&ccode=
Reuters
reuters.com/article/2011/04/12/markets-metals-idUSLDE73B0WS20110412
The Street
thestreet.com/story/11080240/2/goldman-calls-commodities-top-is-now-the-time-to-sell.html
Delcotimes.com
delcotimes.com/articles/2011/04/11/news/doc4da2fdeae7538694359346.txt?viewmode=fullstory
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