One Fin Metals Basket: The One Financial Metals Basket, which tracks the performance of gold, silver, copper, palladium and platinum, finished down last week as crude oil moved lower and the dollar was higher.

Gold: Gold prices dropped last week as weaker crude oil and a climbing dollar reduced the appeal of the precious metal as a hedge against inflation and a falling dollar. Crude oil tumbled last week as the euro dropped to the weakest this year verses the dollar amid signs Europe’s economy is slowing. Demand for crude will increase 1 percent in 2009, the slowest in seven years, according to a 15 August OPEC forecast, as high oil prices slow growth.

“I think we could see further downside for gold prices, driven primarily by the strengthening dollar,” said Jamie Craggy at One Financial. “If crude were to rally due to fresh hurricane news in the Gulf of Mexico, gold could bounce, but I still see an overall downtrend for crude, which is negative for gold as it is often bought as a hedge against inflation.”

Gold may gain 10 percent by the end of 2008 driven by demand for jewellery during the Indian wedding and festival season, according to JPMorgan data. The season has boosted prices every year since 2002 with September the strongest buying month, according to JPMorgan analysts. Over the past ten years, gold has gained by an average of 10.1 percent from September through to December. India, the world’s largest buyer of bullion, increased imports 56 percent last month, the first monthly gain in 11 as price declines boosted jewellery sales.

Gold may gain in the next three months to $900 on demand from investors and the jewellery sector as the value of the dollar declines, UBS AG said last week.

Gold will average less than previously expected in the next two quarters because of the strengthening dollar and lower oil prices, Standard Chartered said last month. Dresdner Bank AG expects gold to decline to $750 by the end of the year. The metal will weaken because of “easing inflation concerns, continuing dollar strength and falling crude prices,’’ a report said. “Headline inflation will come down as commodity prices fall.’’

Copper: Copper tumbled last week as a decline as crude oil fell and the dollar strengthened verses the euro, eroding demand for investments in the industrial metal.

Commodities have entered a volatile period, sparked by a worsening of the slowdown in the OECD and speculation that this will affect developing world demand, in particular Chinese export growth, according to Westpac Banking Corp. “What we are experiencing is a seasonal low point for demand which has temporarily eased the pressure on global stocks of copper,’’ an analyst said. “It would not take much, perhaps another major mine problem or a burst of stronger-thanexpected demand, to send prices spiraling sharply higher.’’ Copper inventories in warehouses monitored by the London Metal Exchange advanced 10 percent, the most in three years on Friday.

Stockpiles rose 18,775 metric tonnes to 200,875 tonnes, figures from the exchange showed. That’s the biggest percentage increase since August 2005 and the most inventories since 8 January.

Prices came under pressure on Thursday as U.S. jobless claims rose, increasing concern that slower economic growth will erode demand for the metal. Concern that global growth will slow and signs that inflation may not accelerate as much as forecast spurred a rout in commodity prices for the past two months.

Copper may bounce this week on speculation the U.S. economy may come out of the current economic slowdown, increasing demand from wire and pipe manufacturers. Sixteen of 31 analysts and traders surveyed by Bloomberg News forecast copper will rise. Thirteen expected a decline and two were neutral. The U.S. is the second-biggest buyer of copper. China is the largest.

Platinum:

Platinum prices tumbled last week on signs slowing economic growth in Europe will drag down demand for the metal’s use as a catalyst in vehicle emissions filters.

Merrill Lynch last week said it expects platinum to average $1,776 an ounce this year, 10 percent below its earlier estimate of $1,977. The metal used in jewellery and auto emissions- control parts will average $1,900 an ounce next year, less than the $2,500 price forecast earlier.

Prices found some support on Thursday as traders speculated industrial users are buying the metal after the price fell 40 percent from a March record.

“The moves lower in platinum-group metals have had some fundamental justification in the weakness in car demand,’’ said the head of metals strategy at UBS AG. “We continue to forecast gold and the other precious metals will trade higher on a one- and three-month view, but we recognize that strong performance will need support from a weaker U.S. dollar.’’

The three biggest U.S. automakers reported a 10th straight monthly sales decline on Thursday, a sign of weakening demand for catalytic converters used in exhaust systems. Platinum consumption by automakers accounts for more than 60 percent of global platinum demand, according to Johnson Matthey Plc, which makes about a third of the world’s auto catalysts.

One Fin Softs Basket: The One Financial Soft Commodities Basket, which tracks the performance of US coffee, US sugar, oats, corn and US wheat, finished down last week as the dollar strengthened and data showed further weakness in the global economy.

Soft Commodities: Soybeans and corn tumbled last week as the dollar gained against the euro, reducing the appeal of U.S. supplies to overseas buyers.

“The strong dollar is the main culprit for the slump in soybean and corn prices,” said Jamie Craggy. “Eventually we should see a recovery as the fundamentals are still strong, but they are currently following the overall bearish mood in the markets.’’

Sugar prices fell last week after a stronger dollar and lower energy prices reduced the appeal of commodities as an inflation hedge. Commodities sometimes move in the same direction as crude oil because rising energy prices may increase production costs. Another reason that lower crude prices may reduce demand for sugar futures is that Brazil has increased the amount of cane used to make ethanol because energy prices climbed. Brazil is the world’s largest sugar producer.

Cocoa prices tumbled on speculation that a slowing European economy will trim demand from chocolate makers. The ECB lowered its 2008 and 2009 economic growth forecasts. Europeans, the biggest consuming region for cocoa, may eat less chocolate as a result. On Tuesday cocoa had its largest fall in eight weeks as a stronger dollar made commodities in the U.S. more expensive for overseas buyers. The European Union nations are the world’s biggest cocoa buyers, according to the International Cocoa Organization in London. The U.S. is the biggest importer of cocoa beans and related products including chocolate, and Ivory Coast is the biggest grower.

Global agricultural commodity prices are likely to stay higher than in the previous decade as strong demand from China and other developing nations outstrips gains in production, according to Mark Petry, a U.S. agriculture official. A growing middle class in emerging markets, rising energy costs and biofuel production will keep prices above “historic levels’’ even after recent declines, he said.

The number of middle class households globally, or those with a combined annual income exceeding $20,000 after adjusting for real purchasing power, will double by 2020 from 2004, Petry said, citing data from Global Insight. China and India will lead the advance, he said. China’s spending power is fueling imports of soybeans, poultry and other products, while its own production is failing to keep pace because of water shortages, limited use of genetically modified crops and a shift to cash crops from bulk commodities.

“China’s soybean consumption should grow at least 8 percent a year,’’ Petry said. While above-normal imports have created a glut, that will be drawn down and normal buyingwill resume later this year, he said. Soybean imports in the first seven months rose 23 percent from year ago to 20.7 million tonnes. That jump helped create oversupply that pushed China’s soybean oil prices to the lowest this year on 13 August, forcing the country’s cooking oil bottlers to cut prices.

In the 2008-09 marketing year beginning in October, ending stockpiles
of U.S. corn will be tighter than last year, while the gain in soybean output will help compensate for low ending stocks from the previous year, Petry said. ‘’I’d be surprised if soybeans fall’’ below the level of about $10-$11 a bushel, because of higher costs of production, especially in South America, he said. Further declines in returns may prompt farmers to scale back planting, he said. Global wheat production may rebound this year and global rice supplies are adequate to meet demand and ending stocks are expected to increase.

About the author

Content provided by One Financial (onecfd.com) Disclaimer: The information given in this message is provided on an information-only basis for marketing purposes and may not be construed as constituting the making of any recommendation or giving of advice on the part of One Financial. This information has not been prepared in accordance with any legal requirement to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. This information may have been prepared by firms other than One Financial and One Financial may not be held responsible for the accuracy or otherwise of its contents.

You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.