Commodities Outlook:

3rd September 2012

Investors interested in commodities should look beyond current short-term concerns, such as the European debt crisis, and focus on the medium to longer term. Over the next 10 years and beyond, many experts predict that demand for commodities will continue to be led by the emerging markets as their development and lifestyles evolve and change, in addition to on-going supply issues within the commodities arena. There are opportunities out there for investors, although it currently seems no asset or sector can escape the problems and potentially escalating sovereign debt issues within the Eurozone.

Whether investors seek opportunities within the hard or soft arena of commodities, prices have shown over the past 12 months that these investments demonstrate the volatility of markets, supply and demand concerns and the impact global uncertainty can have on them. This has been displayed by the terrible bloodshed witnessed in South Africa, where the unrest led to the price of platinum rising given uncertainty and concern over supply issues.

Gold

And whilst gold touched a record high during 2011 at around $1880 an ounce, 2012 has generally seen the price falling back to around the $1600 mark. Gold has always been seen and perceived as a preservation of wealth and safety.  And yet over the past year, as the global uncertainty and European Sovereign debt crisis has continued to escalate, the price has fallen back. Such behaviour in the price has surprised some experts and led others to suggest Gold is no longer a safe haven.

Let us not forget, a bar of gold now will always be a bar of gold in the future.  The value of the asset will be whatever someone is prepared to pay. It provides no income and has a storage and insurance cost.

Investors have the opportunity to gain exposure to gold through a variety of investments, either directly or indirectly. Exposure via a fund means that your returns are not only reliant on demand for the asset but also the management of the mining company and the managing of the raw materials.

Given the exponential rise of ETFs over the past several years, there are many experts who have pointed the finger at these investments as a key reason why the price has become increasingly more volatile. However, holding an asset such as gold in a diversified portfolio does have its benefits.

US Shale Gas

Within the energy sector, the historic and traditional discussions around the price and volatility of oil continue. The emergence and development of the US shale gas fields continues. It is questioned what will be the preferred renewable energy source in years to come, given concerns and worries over nuclear?

Oil

The price of oil continually reflects the political and geographical tensions around the world, along with issues surrounding global supply and demand balances.

Demand for oil shows no sign of abating, despite clamours around the world to reduce emissions and develop more environmentally friendly forms of energy and transportation. Consumption of oil in 2011 was at record levels and many experts forecast 2012 to exceed the previous record levels of 90m barrels per day.

Continue reading…

 

More on Mindful Money:

The Financialist +: '5 reasons food prices will continue to rise'

The real cost of rising food prices

Resource riches and commodity curses

To receive our free daily newsletter sign up here

The Financialist

30 thoughts on “Commodities Outlook:”

  1. dutch says:

    http://www.ons.gov.uk/ons/dcp171766_311546.pdf

    ‘Rental prices in England and its regions (2005-2013)
    The IPHRP series for England starts in 2005. Private rental prices in England show three distinct
    periods: rental price increases from January 2006 until November 2009, rental price decreases from
    December 2009 to November 2010, and increasing rental prices from December 2010 onwards’

    The index has gone from 95 in 2005 to 102 now……….

    1. Anonymous says:

      Hi Dutch

      The Office for National Statistics has struggled to get a reliable rental series for the UK which they confirm from your linked article here.

      “IPHRP is released as an experimental statistic. This is a new official statistic undergoing evaluation and therefore it is recommended that caution is exercised when drawing conclusions from the published data as the index is likely to be further developed”

      But the fact that the rental data system was uncertain and new bothered no-one who authorised its use in CPIH. I understand that ultimately the National Statistician is responsible for what can only be described as a shambolic state of affairs.

  2. dutch says:

    http://www.ons.gov.uk/ons/dcp171776_341133.pdf

    ‘• Between 2007/08 and 2011/12, average income from employment and investments for the
    middle fifth of non-retired households fell from £37,900 to £32,600.
    • Cash benefits for the middle fifth of non-retired households rose from £3,100 to £4,600 between
    2007/08 and 2011/12. As a result, the average proportion of gross income coming from cash
    benefits increased from 7.6% to 12.3% for this group.
    • Average direct taxes paid by the middle fifth of non-retired households have fallen from £8,700 in
    2007/08 to £6,800 in 2011/12. As a percentage of gross income, this is equivalent to a fall from
    21.1% to 18.3%.’

    This is what five years of ZIRP has achieved.

  3. Anonymous says:

    Shaun,

    Your analysis indicates the search for capital returns concentrating on essentials energy, food etc- inflation on these ignored by BoE etc in the hope general population will be conditioned by mass media to accept this and be distracted by cheaper electronic goodies!

    EU particularly Germany impotent as Russian energy supply trumps Crimea concerns!

    1. Anonymous says:

      Hi Chris

      Yes I think that our eyes should be firmly on the essentials like food and energy. I would also add water as on a personal level my bill from Thames Water keeps escalating and on a larger level I notice that (financial) water markets are being developed which usually only has one consequence!

  4. forbin says:

    Hello Shaun,

    dis inflation is bogus concept , as for the real threat of deflation…

    well of course ! wages have been deflating for some time now – no one cares , well not the BoE or HMG . They can only lend us more ….. which is how we go to this place in the first place!

    ah “media conditioning” , orwellian don;t you think ?

    and if inflation is bad because it puts prices up then why is deflation bad ? means I can buy more doesn’t it , oh that will never do !

    Frankly Shaun I think the BOE/HMG tell so many lies that the truth slips out by accident !

    in the meantime the public can enjoy more Ant ‘n’ Dec on TV whilst being told they eat too much sugar ……….

    Forbin

    1. Drf says:

      “dis inflation is bogus concept” Really? I do not somehow think Shaun would agree with that statement of yours?

  5. therrawbuzzin says:

    Obviously Nobbled Statistics?
    As inequality grows in the UK, medians mean less and less to more and more.

    1. forbin says:

      the consequences for a debt fueled consumerest economy is quite dangerous . Can you have such a thing when all the people can afford is just food fuels and housing? (if that ).

      As you say who will care about inflation when ones only thoughts are for when is the next meal coming from ?

      If this was a sharp shock people would revolt , but we have a slow boil and the frogs doesn’t know it yet ….

      Forbin

      PS: Shaun favor a Dune scenario , myself I think of Harry Harrisons Homeworld ….

      1. therrawbuzzin says:

        I’ve just, after years of waiting, got an allotment. 😉
        Shall I grow you some corn?

        1. forbin says:

          LoL!

  6. Midge says:

    Hi Shaun, 5yrs of BR at 0.5% no wonder you put temporary in your lexicon.
    What chance of falling prices and disinflation? For awhile I believe this is likely as shown by the government’s skewed indices.You are quite right in your continual pursuit to put house prices rather than rent paid in these.
    The freezing of council tax and television licences has been some help as wages lag inflation.Your figures show that shop’s still have a problem in passing on price rises.
    It’s truly about about GBP/USD and as you say this can change.Later in the year if Scotland looks like voting yes this uncertainty could make the GBP wobble.A set back in the continually good figues would I believe do the same
    Further into the future an uncertain outcome for staying in Europe could really hit the GBP.
    Mr Draghi as I understand has made no changes as he states that inflation will stay low for a considerable time.I was amused as he was saying this EUR/USD was rising.

    1. dutch says:

      ‘Your figures show that shop’s still have a problem in passing on price rises.’

      The amount of empty shops in many city centres suggest that a lot of shops have a problem shifting stock full stop.

      Of course they remain marked to model on the mortgagee’s books despite the clear divergence between profitability and historical rents.

    2. Anonymous says:

      Hi Midge

      Yes I watched the press conference of the ECB and the market change was a rallying Euro which is up 0.9% today according to the FT at 1.386 versus the US Dollar. So an addition to the disinflationary pressure the Euro’s exchange rate has been providing. Are the Euro and the pound £ the new safe-haven currencies? Hard to believe but the numbers do at least hint that..

      As to timing I answered a question on this subject about Mario Draghi’s pronouncements on twitter.

      @WEAYL 8h

      Is an extended period longer than a prolonged period?

      @notayesmansecon 8h

      Yes but neither are as long as temporary…..

  7. Max says:

    the incompetence of man never ceases to amaze me. I hope the conservatives get booted out by a large UKIP vote. Not that they will be any better.

    1. Anonymous says:

      Hi Max

      It is a problem of these times that democracy is being handicapped by the fact that all of the main political parties seem so out of touch and useless. I am a big fan of using one’s vote but would like a “none of the above” option. I think that they would get quite a shock if it was introduced.

  8. Max says:

    btw Shaun, it is clear to the average idiot in the street that we are suffering massive inflation. Sadly, if you keep fiddling with the stats you end up with useless stats.
    Our ‘inflation’ figures in the UK are a bit like the debt ceiling in the US. It is there for a purpose, but then they raise it every 2 years anyway!!!! So it is pointless.

    1. therrawbuzzin says:

      As a prime example of your average idiot, I have been posting for some time about the differences between real and statistical inflation.
      It seems that it is only the non-idiots who give these statistics any credence.
      What does that say about officialdom?
      Inventing the statistics they want to suit their agenda?
      Certainly inventing “disinflation”, and “worrying” about it, gives justification to causing further real inflation to melt the debt.

      1. Max says:

        how true. and in the process ruining the country.

        1. therrawbuzzin says:

          http://www.mindfulmoney.co.uk/pensions-and-sipps/we-may-not-be-living-as-long-as-the-government-thinks-says-leading-think-tank-as-it-warns-about-automatic-rise-in-retirement-age/
          Another “incorrect” statistic, which can, coincidentally be used to justify raising the retirement age, benefitting both the treasury and financial institutions.
          National statistics; all about thieving from Joe Bloggs.

    2. dutch says:

      It does depend where in the food chain you sit in terms of income as to whether the last few years have been inflationary.

      Lower income earners have suffered disproportionately hard at the hands of food and fuel rises,but those who’ve bought expensive sofas haven’t fared too badly.

  9. Mike from Enfield says:

    Ginger nuts every time…and maybe popcorn is called for?

    Given what is going up in price and what is going down, this confirms personal inflation for most of us is looking rather nasty but very rosy for the rich. It seems the only price rises that need concern them is their share portfolios.

    Mass Media Conditioning – what were they thinking when they came out with this phrase? Presumably they exclude themselves from this charge or is the FT not part of the mass media? It seems to me they are more guilty than most in cheer-leading BoE policies and enhancing the belief in its members’ infallibility.

    1. Anonymous says:

      Hi Mike

      I would love to be canteen manager “We can’t afford them as the price has gone up too much” etc…

      As to the FT the weaknesses of what it has published are quite plain. The UK has just suffered from an above target inflationary episode which however inconvenient for the views of the author of that article is a known fact.

  10. Noo 2 Economics says:

    I believe food inflation is a direct consequence of emerging market populations becoming “wealthier” (i.e. they can afford to eat better food and heat their homes but not actually buy the electronic/mechanical goods they produce) therefore they compete with us for food and the price goes up. As our incomes fall in real terms so a greater proportion of our income is taken on food and fuel leaving less for “core” items like an ipad and clothes so tese items are forced down in price. We are slowly converging with the lifestyles of emerging market populations.

    As for the property prices, well we need somewhere to live and with help to buy etc then as Yazz said “the only way is up” and so our disposable income comes under more pressure. With house prices conveniently out of the inflation index, deflation can be worried about .

    The thing is that in about 5 years time, when these property prices are being reflected in increased rents as landlords try to recoup the extra amounts they paid to purchase their properties we may be in a falling inflation environment which is then being pumped up by CPI via it’s rental equivalence measure reflecting a past event in property prices – how I will chortle when that happens and watch as the authorities try to include house purchase prices again to back up their fallacious allegation that we are: now, how did Brown put it in 2008/2009? Oh yes “trapped in a deflationary spiral I tells ya”.

    One other thing, remember the GBP cannot keep rising and when it plateaus we will see disinflation firm up, even though we cannot buy as many “core items” as we used to and then there’s the good old Brirtish Government (of any hue) busily increasing water charges by inflation plus 3% (what happened to them being privately owned and deciding their own pricing policy?) and rail fares being increased by statutory amounts of inflation plus 5% and that’s before I get to petrol taxes and if all else fails they can always return to VAT!!

    Disinflation? What disinflation?

    1. Anonymous says:

      Hi Noo2

      I agree entirely about the pressures on food prices and the latest OECD-FAO report highlights an example of this.

      “China is expected to become the world’s leading consumer of pigmeat on a per capita basis, surpassing the European Union by 2022.”

      Also urbanisation in China will lead to this.

      “Not only does food consumption appear higher in urban contexts, which are associated with higher incomes, consumption of meat and dairy and fish products are also much higher. These demographic trends will support changes in diet structure, implying growth in the demand for feed grain and protein meal.”

  11. Drf says:

    “Non-food reported annual deflation of 3.0% in February from 2.7% in January – the lowest ever recorded.” now from the BRC. Here we go again with statements indicating that the originator has no idea of what “deflation” actually means! There is no “delation” (yet) and never will be in a predominantly socialist economy. This supports my point that these terms need to be more clearly and authoritatively defined, so that all can use them to have the same and proper meaning; otherwise we have the confusion presently existing, particularly in the MSM. For deflation to occur inflation needs to fall and to cross the algebraic origin; the situation is otherwise only disinflation.

    I suspect however that this is intentional, and is to attempt to cover up the realities of the ongoing debauchery (by all its component means), pretending that if we do not keep going with it all hell will break loose, whereas of course the exact opposite is the reality.

    1. Anonymous says:

      Hi Drf

      I have held to the following code.

      Inflation: Prices rising (continuously)
      Disinflation: Prices falling (continuously)

      Deflation is a fall in aggregate demand in an economy which UK experience has shown can come with (and be caused by) inflation.

      I would also add DEFLATION where the capitals represents falling prices,aggregate demand and wages like Greece.

      But as you say the media spray the word around meaning nearly anything which they think has a bad connotation…

      1. Drf says:

        Then you demonstrate my point, Shaun. Wikipedia has a different definition of “Disinflation” from yours here, as do other sources. I do not know of any source which defines it as you have. This is what causes the confusion in meaning I would suggest; but as I mentioned I think this is done deliberately, particularly by governments and left-wing leaning economists, so as to conceal the real inflation which they want?

        I also think there is now a problem with the true definition of DEFLATION. Economics is very much mathematically based in its theories and definitions. The rules of Algebra are extremely clear. You can, without imaginary numbers, have positive and negative states in all values. The transition between positive to negative (or vice versa) thus involves crossing the origin in terms of variation so as to change the sign of the function. The way in which you have defined DEFLATION above does not pay any credence to that discipline. According to the sources which I have found, there are 2 defined states relative to money debasement and prices etc.: these are “inflation” and “deflation” (the former is positive and the latter is negative). There are then the two defined gradients of this variation (as effectively rates of change): “disinflation” and “reflation”, the former being a fall in value, the latter being a rise in value.

        So I stick to my contention raised hereon, that sloppy use of these terms is confusing most observers, but that is probably the whole point?

        1. Noo 2 Economics says:

          Yes you’re right we definitely need a standard definition of these terms.

          My definition of deflation is simply falling prices and aggregate demand whilst I have been defining disinflation as prices rising at a slowing rate – so there’s another definition for you!

          Now you have established for me that I have been making assumptions about what economists mean when they use these words, unfortunately that leaves me more confused than ever!

  12. Anonymous says:

    Hello, Shaun. Thank you for the reference to the FT article. I had never heard of its author, Izabella Kaminska. It’s nice to know that FT is putting more Slavs on its payroll.

    I noticed one of the comments on her article on the FT website, talked about how the much higher RPI inflation couldn’t be taken seriously because of the formula effect. But even if one looks at RPIJ inflation, it was at 2.1% in January, up from 2.0% in December. It’s not only clearly positive, it is above the Bank of England’s 2% target rate.

    It seems that the RPI doesn’t include stamp duty, for no obvious reason; if it did one would see an slightly higher RPIJ inflation rate in January, and a slightly stronger acceleration. Stamp duy will be included presumably in the quarterly owner-occupied housing index that ONS will calculate for Eurostat starting in September.

    Do you think that La Kaminska is a deflation nutter?
    Andrew Baldwin

Leave a Reply

Your email address will not be published. Required fields are marked *