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How Central Bank Policy Impacts Asset Prices Part 4: Commodities

Tyler Durden's picture




 

Through a wider looking glass, apart from Gold, commodity prices remain mostly driven by economic cycles rather than central bank actions. The correlation of Gold with Central Bank balance sheets remains the dominant theme as it grows in substance as a true global currency and a hedge against money debauchment. Since September’s coordinated easing from central banks, commodities have turned in mixed performances (-5% for oil, -3% for metals). The direct impact of monetary policy on industrial commodity prices appears very limited today (contrary to the situation during QE2 period), given the bleak global economic outlook and the absence of aggressive easing from China.

 

Via SocGen:

Gold and monetary stimulus

Gold shows some correlation with the size of balance sheets of major central banks, as it is seen as a global currency and a hedge against money debasement.

Some profit taking has lowered gold prices in the past month but current and future potential QE programmes from the Fed (QE3.5?) and the BoJ (QE9?) among others could send gold prices higher.

Gold’s safe haven status could drive prices higher if renewed tensions were to materialise.

Oil, agricultural and industrial commodities

Since September’s coordinated easing from central banks, commodities have turned in mixed performances (-5% for oil, -3% for metals).

The direct impact of monetary policy on industrial commodity prices appears very limited today (contrary to the situation during QE2 period), given the bleak global economic outlook and the absence of aggressive easing from China.

The oil price remains highly dependent on fundamental factors of global demand and supply (plus geopolitical risk). But massive liquidity injections in the economy may impact oil prices indirectly.

The strong increase in soft commodity prices in 2010-2011 began before QE2, and was driven by significant supply issues.

 

Source: SocGen

 

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Mon, 10/29/2012 - 15:46 | 2928725 SDRII
SDRII's picture

Here is a hedge, take down a cargo ship in Russia with 700 tons of Gold ore

 

"A Russian cargo vessel, the Amurskaya, that went missing on Sunday in the Sea of Okhotsk carried 700 metric tons of gold ore, the Far Eastern transportation supervising department said in a statement on Monday.

“The bulk freighter was en route from the port Kiran to the port of Okhotsk with a cargo of gold ore weighing 700 tons. There supposedly was a crew of nine people,” the statement said."

http://en.rian.ru/russia/20121029/177006175.html

Mon, 10/29/2012 - 15:55 | 2928751 SilverTree
Mon, 10/29/2012 - 16:36 | 2928859 DoChenRollingBearing
DoChenRollingBearing's picture

Mickey Fulp ("The Mercenary Geologist") writes up his latest musings on gold and silver:

 

http://tinyurl.com/8lpfeqw

Mon, 10/29/2012 - 16:45 | 2928897 Conax
Conax's picture

His musings on silver chew the ass.

"Although silver has traded below $30 most of 2012, it is now at $32 in the aftermath of QE3. Silver is not money; it is more industrial than precious metal."
Mon, 10/29/2012 - 17:24 | 2929051 DoChenRollingBearing
DoChenRollingBearing's picture

His views do not always coincide with my own re PM pricing.  But, Mickey Fulp is acknowleded pro in the mining business.  That is why I became a syndicator of his stuff!  My background (in part) is Geology.

Mickey Fulp gets PAID by others for his views.  Fringe Blogger Bearing does not.

Mon, 10/29/2012 - 18:13 | 2929169 Conax
Conax's picture

He was fine until he said silver isn't money.

The Chinese word for bank translates to 'silver house'.

"By your wisdom and understanding you have gained wealth for yourself and amassed gold and silver in your treasuries." ~ Ezekiel   28:4

Mon, 10/29/2012 - 19:14 | 2929380 DosZap
DosZap's picture

I guess the Turks do not get the Chinese Daily..................(a tad OT,but, some people lead sheltered lives).

http://bloomberg.finanza.repubblica.it/Notizie/Article?documentKey=1376-MBMDN00UQVI901-1QU79SCFAIKV408EENQ5BGJL3U

Mon, 10/29/2012 - 15:47 | 2928726 Dr Paul Krugman
Dr Paul Krugman's picture

Gold is a fear trade because Central Banks have not done enough to spur growth and left the world in a stage of fright.

There is relatively no inflation.

Mon, 10/29/2012 - 15:55 | 2928752 LawsofPhysics
LawsofPhysics's picture

"There is relatively no inflation."

----------------------------------------------

Yes, especially if you don't have to eat or actually go anywhere and do  anything.  You are so misunderstood.

Mon, 10/29/2012 - 15:59 | 2928766 Dr Paul Krugman
Dr Paul Krugman's picture

As Tyler Durden points out above the rise in commodities has been cyclical.

Mon, 10/29/2012 - 16:10 | 2928785 LawsofPhysics
LawsofPhysics's picture

yes, and unbeknownest to most of us, so is the human population.

Mon, 10/29/2012 - 16:31 | 2928842 edifice
edifice's picture

Human population is the largest bubble in the history of... history.

Mon, 10/29/2012 - 16:40 | 2928862 Dr Paul Krugman
Dr Paul Krugman's picture

Correct; old poor people are creating dead weight loss for the economy.  This is why it is pertinent to create growth now.  We must be able to bridge any gap now so that in prosperous times we can pay back debt.

This is also why we should not cut back now. 

Mon, 10/29/2012 - 17:02 | 2928945 LawsofPhysics
LawsofPhysics's picture

Too bad you can't create more energy. - FAIL.

Let the "dead weight" be cleared.  it will anyway, regardless of the "solutions" you propose.

Mon, 10/29/2012 - 17:36 | 2929078 Roandavid
Roandavid's picture

Right there is the hole in your program.

There is no scenario where debt can/will be paid in currency units that even begin to approach present values.

To pretend otherwise is economic malpractice of the highest order.

Tue, 10/30/2012 - 19:29 | 2933081 waviator
waviator's picture

Nice one MDB! Or are you just a copy cat

Mon, 10/29/2012 - 16:03 | 2928775 Roandavid
Roandavid's picture

You're doing a great job Dr. Krugman.

I'm a big fan, your stellar advice on how to ruin .... er ..... run an economy has caused my modest little stack to double in value.

I don't know how to repay you.

Maybe I'll just wait untill this trade is finished and send you over a couple mill, you can get yourself a good burger or something.

Mon, 10/29/2012 - 16:00 | 2928768 alangreedspank
alangreedspank's picture

Yup, that was Krugmanesque enough.

Mon, 10/29/2012 - 15:48 | 2928730 fonzannoon
fonzannoon's picture

Hey Tyler you are the freakin best man. Thanks for putting this stuff out today. For anyone stuck in their house today this is awesome.

Mon, 10/29/2012 - 16:36 | 2928856 rustymason
rustymason's picture

An impact is a violent collision or a wedging of something into too small a space.

Effect is a noun and is a result or outcome. 

Affect is a verb meaning to change or alter something.

Grammar Girl explains:

http://grammar.quickanddirtytips.com/affect-versus-effect.aspx

Mon, 10/29/2012 - 16:39 | 2928875 balz
balz's picture

Gold is no commodity.
Gold is money.
Nuff said.

Mon, 10/29/2012 - 17:11 | 2929009 DeficitAlchemist
DeficitAlchemist's picture

'Silver it is more industrial than precious metal'

Silver is money too -- not purely Industrial at all and Gold has a small industrial element... it is highly correlated to Gold with higher Beta... Often the next cheaper substitute for Golds own Industrial uses which is now to costly. Silver will bridge the smaller increments we will need when Gold goes to the moon.. also not cost effective to fake (yet) safe way for smaller savers and likely to have bigger kick come reset day.. although a bumpier ride.

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