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Wednesday October 1, 2008

Commodities market caught in turmoil

PETALING JAYA: The financial hurricane sweeping through global markets has not spared the commodities market, and the outlook remains uncertain for oil and crude palm oil (CPO), but gold looks a more solid bet going forward, analysts said.

CPO futures have slumped more than 50% off its record price of RM4,486 per tonne in March.

Yesterday, it fell to an 18-month low with the benchmark December delivery at RM2,090 per tonne.

While overall sentiment remained weak, some analysts said at current levels, CPO prices might already have bottomed out and would likely settle around these levels, unless crude oil fell further.

OSK Research analyst Alvin Tai said CPO price “should see (a) recovery” in the fourth quarter due to seasonal drop in production.

Meanwhile, US crude oil has fallen 34% since its US$147 peak on July 11, slumping more than US$10 on Monday to close at over US$96 per barrel.

“I think the global economy is treading on very thin ice, ” said a Singapore-based oil trader.

“This (oil price) certainly raises heightened concerns about global demand conditions, especially in the US,’’ Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd in Melbourne told Bloomberg. “The trend for prices is down and I don’t think we’ve seen the bottom yet.’’

Deutsche Bank said earlier this week it had lowered its forecast for US crude oil prices to an average US$92.50 a barrel next year due to weakening demand.

Its previous forecast for the commodity was US$120 per barrel.

But while other commodities are getting a beating, gold has not lost its glitter.

Spot gold prices hit close to a two-month high of US$920 an ounce on Monday, its highest close since early August but was still below its record high of US$1,030.80 struck in March.

Analysts are expecting prices to break the US$1,000 an ounce level soon and set new records in the next quarter, saying investors can thank the current financial crisis for the bull market in gold.

When the going got tough, investors turned to “safer” commodities like gold, analysts said.

“As long as this uncertainty in financial markets continues, it will provide strong support for gold, while the long-term implications of the bailout should weaken the dollar,” Toby Hassall, an analyst at Commodity Warrants Australia was quoted as saying by Reuters yesterday. US lawmakers rejected on Monday a US$700bil bank bailout aimed at stablising the US economy,

“Currencies are going to be volatile and some people will think holding gold is a better alternative than paper currency,” he said.

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