PETALING JAYA: Commodity markets are beginning to show signs of a turnaround but it is too early to tell if the current uptrend is sustainable, analysts said.
Commodity indices have been showing signs of life in the past week on the back of a rally in global equities in recent days, with crude oil trading above US$53 per barrel and crude palm oil (CPO) closing above RM2,000 per tonne on Monday.
“The CRB is beginning to develop a more convincing bottom and commodities are stronger in the short to medium term, but it is still too early to tell if it (the rally) is sustainable,” said Lee Cheng Hooi, Maybank Investment Bank Bhd head of retail research, referring to the Reuters/Jefferies CRB Index, which tracks 19 commodities.
Commodities took a breather yesterday, with the benchmark June CPO futures ending the day below RM2,000 per tonne, down RM50 or 2.46% to RM1,980 per tonne.
At press time, the Nymex 1-month crude oil future also eased slightly, down 0.86% to US$53.34 per barrel while spot gold was little changed, inching down US$4.66 or 0.5% to US$934.84 per tonne.
Analysts attribute the gain in commodity prices mainly to the weakening of the US dollar due to effects from economic stimulus measures in the world’s biggest economy.
Lee said with the greenback losing value, commodities were gaining as most were quoted in US dollars.
“With the US$300bil plan to buy US bonds, the theme is dollar negative. The commodities market is definitely experiencing a little bit of a rally,” he said. “The inverse relationship is still holding.”
International investors could also be using commodities as a hedge against inflation and a falling dollar.
Bloomberg reported that the greenback fell on Monday for the ninth time in 10 sessions against a basket of six major currencies, enhancing the appeal of raw materials to investors.
The US Federal Reserve (Fed) pledged last Wednesday to buy as much as US$300bil in treasuries, up to US$750bil of bonds backed by government-controlled mortgage companies and US$100bil in debt from other government agencies to loosen credit and bolster the housing market.
The following day, the CRB Index jumped the most this year as the greenback fell on news of the Fed’s announcement.
Tom Hartmann, a commodity analyst at AltaVest Worldwide Trading Inc in Mission Viejo, California, was quoted by Bloomberg as saying the Fed was printing money to buy government debt which would stoke fears of inflation.
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