The commodities sector recorded losses for the third consecutive month in August due to the trade war and the problems in emerging countries. Crude oil has risen, on the other hand, due to signs of declining production in Iran, in response to US sanctions, says Ole Hansen, Saxo Bank’s Commodities Strategy Director. These developments, with ups and downs, can be directly related to the decisions taken in recent months by the US administration and the Federal Reserve.
A strong US economy has increased the chances for the Fed to tighten fiscal policies, which has generated some pressure on emerging countries struggling with a high level of their foreign debt in dollars. Then, we have the ongoing war between China and the US, about which President Trump said he might escalate in September because he is considering the imposition of additional taxes on Chinese commodities worth 200 billion dollars. Therefore, the market raises questions about global growth and, with that, with the demand for key commodities in 2019.
This is a significant source of concern for China, a dominant country when it comes to demand for industrial metals. In response to US tariffs, Beijing has allowed the Chinese currency to fall, adding additional pressures on commodities prices, especially gold and copper. August was a good month for energy, with a few exceptions. Oil recovered after mid-August sales that were triggered by the Sino-American trade tensions narrative.
Crude oil will fluctuate in the margin of USD 70-80 USD/barrel.
After reaching record highs of nearly 1.1 billion barrels in March, hedge funds have cut nearly 40% this volume, reaching a minimum in the past 11 months. Following the chart, we see how the market is growing (bullish), though with less impetus than at the beginning of the year.
Growing above the USD 75/barrel, oil now tests the price of USD 78.50, or even USD 80/barrel.
Gold is trading again over USD 1,200/ounce, continuing to recover after the mid-August shock. Recovery was not enough to get the precious metal from the 5th consecutive month of losses. This weakening in price is largely due to a stronger dollar. But we also lack the desire to diversify portfolios, as US action markets are on the rise.