Commodities supercycle is over
23 April 2013 12:48am
But I flew back into London just as commodity markets started tanking, led by a violent fall in gold prices, with bullion clocking up its sharpest one day drop since the 1980s (the price has since risen, but has not regained all its former ground). Copper breached $7,000 a tonne on the London Metal Exchange, as China’s weaker than expected first quarter GDP print of 7.7 per cent and lower IMF global growth forecasts served up a sell signal for traders.
The skyscraper Brookfield Place dominates Perth and symbolises the hopes of the mining sector. Its major tenant is the world’s biggest resources company BHP Billiton. The building was almost a casualty of the financial crisis, but eventually opened last year. The commodities sector defied the odds in 2008, but when conditions should now be improving, the reality is setting in that far too much money was splashed on expansion.
Analysts have scrambled to keep up with price declines. Barclays slashed its average gold forecast for the second time in about a month. Its bullion target in mid March was reduced to $1,646 an ounce for 2013. On Friday it cut the target again to $1,438. Barclays also reduced Brent crude, West Texas Intermediate and silver forecasts.
The mining giants have been executing a delicate balancing act, shedding excess while keeping hopes alive that commodities will stay stronger for longer. But even with fundamental shifts on the supply side, the market remains bearish. Societe Generale and S&P Capital IQ are adamant there is no entry point (even after the latest declines) until there is clarity on demand for commodities. Also telling this week was the declaration from prominent Australian economist Shane Oliver of AMP Capital that markets are gradually realising the commodities super-cycle is now over. The declaration that the boom is dead has yet to fully hit home, and we should be fearful of what that means for money still invested on a false promise.
Karen Tso is an anchor for Squawk Box Europe on CNBC. Follow her on Twitter @cnbcKaren
In other news
Labour has performed a balletic U-turn this morning, abandoning its opposition to EU membership referendum. [Read more]
Greece’s interior minister has said that the country cannot afford its 5 June payment to the International Monetary [Read more]
Young people aged 16 and 17 years old should be given the chance to vote in a EU referendum, according to the [Read more]
The Bank of England is carrying out a confidential investigation into what would happen if the UK left the European [Read more]
This year's Eurovision Song Contest will feature an addition to the normal line up – for the first time ever, [Read more]
Tonight is the 60th Eurovision Song Contest, and once again we're in for an evening of cheesy music and crazy [Read more]
The Eurovision Song Contest is getting more and more expensive, despite Europe's decline into austerity. [Read more]
There were delays of up to 30 minutes to trains in and out of Kings Cross Station, after the station was re-opened [Read more]
When a 20-year-old footballer publicly declares he wants to leave a club and his agent hurls insults at one of [Read more]
The outbreak of bird flu in the US is leading to an unprecedented situation for companies reliant on eggs – [Read more]
Germany's finance ministry has denied reports it was considering offering Greece its own parallel currency. [Read more]
Chancellor George Osborne was given a boost today, as higher tax receipts helped shrink the deficit by more than [Read more]
Beleaguered spread-betting firm Plus500 today suspended trading in its shares on London's junior market, following [Read more]
The news that card and electronic transactions have overtaken cash as the UK’s preferred method of payment is [Read more]
Despite the crippling effect of election uncertainty, offers received in April were up 15 per cent on last year [Read more]
Former secretary of state for communities and local government Eric Pickles is to be knighted, 10 Downing Street [Read more]
Network Rail engineers have destroyed the Abbey Wood station as part of the Crossrail development that is expected [Read more]