GOLD PRICES jumped 1.5% in barely an hour in afternoon London trade Friday but silver fell to fresh 6-year lows beneath $13.80 per ounce as world stock markets sank again together with commodity prices.
Crude oil on both sides of the Atlantic lost over 2% to new 7-year lows as US natural gas sank 2.8% and base metals pulled London’s mining-heavy FTSE100 share index down 2.5% at one point, with Anglo American (LON:AAL) down 7.7% and BHP Billiton (LON:BHP) down 5.7%.
South African-based insurance giant Old Mutual (LON:OML) led the plunge however, dropping over 11% at one point as the Rand hit new all-time lows following the surprise sacking by President Zuma of respected finance minister Nene.
The Euro spiked near its highest price against the Dollar in more than a month on the FX market, briefly driving the gold price for Eurozone investors down to a new 2015 low beneath €970 per ounce.
US Treasury bond prices meantime jumped, pushing 10-year yields down towards their lowest levels so far this month at 2.17% and unchanged from this time last year, before the Federal Reserve began pointing to next week’s policy meeting as a likely start to “normalizing” interest rates from their near-zero level of the last 7 years.
“We are nowhere near the deflationary spiral that is so often alluded to,” said German Bundesbank president Jens Weidmann in an interview Thursday, adding in a speech today that the European Central Bank’s €1.5 trillion QE bond-buying scheme is blurring the lines between fiscal and monetary policy.
“The effect of lower energy prices on the inflation rate will disappear in time.”
Credit default swaps insuring debt-holders in Devon Energy (NYSE:DVN) – the largest independent US oil and gas producer with a market cap of $14 billion but now down 72% since 2010 and halving on the New York Stock Exchange since May – have jumped more than 40% this week and risen 158% since the start of 2015, says a note from ratings agency Fitch.
That prices Devon’s bonds “below investment grade territory…likely driven [by its] recently announced acquisitions making market participants nervous as they are not partial to deals that add debt,” says Fitch.
Investment fund Third Avenue Focused Credit (TFCVX) yesterday became the largest US mutual fund to fail since the global financial crisis, Reuters reports, locking investors in for “up to a year or more” as it tries to liquidate $789 million of energy bonds after they fell 23% in value through 2015.
“2016 broadly speaking will be probably the year of commodity prices bottoming out,” says Xavier Denis, global strategist at the private banking division of French investment and bullion bank Societe Generale.
“But not all commodity prices are going to experience probably the same bounce back…When you look at iron ore, when you look at steel, when you look at aluminium, you still see some over capacity especially in China.”
“Silver’s fundamentals should tighten in 2016,” reckons the latest Metal Matters monthly from bullion bank Scotia Mocatta this week, “as production cuts and mine closures at lead-zinc mines take effect.”
Over in gold, the share price of major South African miners leapt again early Friday as the Rand fell yet again.
“The weakening of many producers currencies relative to the Dollar, alongside lower oil prices, is helping reduce mine site input costs such as power, fuel and labour,” says the latest Precious Metals Weekly from London-HQ’ed analysts Metals Focus.
Those lower costs mean that what Metals Focus call “the race to escape lower prices” will likely see new record gold mining output in 2015, according to forecasts across the industry.
“A higher Dollar will continue to put pressure on all commodities medium term,” says a note from analysts at German investment bank and former bullion benchmark member Deutsche.
But looking at trader positioning in US derivatives contracts, and warning of a “short-covering” rally, the bank adds that “copper shorts are already at an extreme; oil and gold longs are at new lows for the cycle but elevated compared to prior down-cycles when they went very short.”
New data from China meantime said Friday that bank lending jumped 38% in November on lower Yuan interest rates, while the broad M2 measure of money supply rose faster than 13% per year.
The Yuan today hit a new 4.5-year low to the Dollar on the FX market, holding bullion contract prices on the Shanghai Gold Exchange unchanged on the day.