Oil and base metals prices, already hit by oversupply and sagging demand, suffered a fresh blow this week as China shocked markets by devaluing its currency. But gold and other precious metals managed to rise over the week.
Bernard Aw, a strategist at IG Markets, predicted prices to remain weak after the International Energy Agency on Wednesday forecast the global oversupply backdrop to last into next year. "The IEA assessment that the supply glut situation would be extended beyond 2015 continues to contribute to the pessimistic outlook for energy," he said.
The Organization of the Petroleum Exporting Countries this week said that its output in July rose by 100,700 barrels per day from the previous month to 31.5 million bpd. The producer cartel's refusal to cut its output level despite weak demand is seen as a reason for a prolonged oversupply, which has contributed to oil prices falling to almost a third of their mid-2014 peak. Analysts have said the move is an attempt by the cartel's kingpin Saudi Arabia to defend its market share as it fends off competition from US shale oil. Crude prices fell this week also as traders tracked developments over China, the world's biggest consumer of energy.
Commodity markets in general have been beset by China's decision to devalue its currency in a bid to boost exports out of the Asian country, which is the world's second biggest economy after the United States. The move has supported the dollar, causing additional pressure for commodities priced in the greenback, by making them more expensive for holders of rival currencies. By Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in September dipped to $48.95 a barrel from $49.02 a week earlier. On the New York Mercantile Exchange, West Texas Intermediate or light sweet crude for September slid to $42.40 a barrel from $44.21.
"Commodity prices fell on the news, with the exception of precious metals which benefited from some renewed safe-haven demand," said analysts at Capital Economics. It comes after the World Gold Council said that global gold demand weakened in the second quarter as purchases fell in key consuming nations China and India. "Total demand was 915 tonnes, a fall of 12 percent compared to the same period last year, due mainly to a decline in demand from consumers in India and China," the WGC said in a quarterly update.
"However, demand in Europe and the US grew, driven by a mixture of increasingly confident jewellery buyers and strong demand for bars and coins. "Looking ahead, there are encouraging signs moving into what are traditionally the busiest quarters for gold buying in India and China," it added. The price of gold slumped in July, the start of the third quarter, striking its lowest level in more than five years at $1,072.35 an ounce. It has since rebounded back above $1,100. By Friday on the London Bullion Market, the price of gold rose to $1,118.25 an ounce from $1,093.50 a week earlier.
Silver climbed to $15.55 an ounce from $14.75. On the London Platinum and Palladium Market, platinum increased to $997 an ounce from $946. Palladium grew to $623 an ounce from $602.
Copper on Wednesday hit $5,062 a tonne - the lowest level for six years. There was a six-year low also for aluminium at $1,553.50 a tonne, while zinc hit a near four-year trough at $1,730 a tonne.
"Most metal prices are currently lower than at any time since the 2008/09 economic and financial crisis... due first and foremost to growing concerns about the Chinese economy and an oversupply," said analysts at Commerzbank. Faced with market concerns, China's central bank raised the value of the yuan against the dollar by 0.05 percent on Friday. The higher fixing came after the People's Bank of China reassured financial markets by pledging to seek a stable currency after a shock devaluation of nearly two percent on Tuesday.
That cut, and two subsequent reductions. sent global financial markets into a tailspin as it raised questions over the health of the world's second-largest economy and sparked fears of a possible currency war. By Friday on the London Metal Exchange, copper for delivery in three months edged up to $5,165 a tonne from $5,162 a week earlier.
-- Three-month aluminium dropped to $1,572.50 a tonne from $1,594.50.
-- Three-month lead grew to $1,742 a tonne from $1,693.
-- Three-month tin gained to $15,520 a tonne from $15,305.
-- Three-month nickel decreased to $10,545 a tonne from $10,845.
-- Three-month zinc slid to $1,839 a tonne from $1,853.
By Friday on Liffe, London's futures exchange, a tonne of white sugar for delivery in October dropped to $349.20 from $358.50 one week earlier. On the ICE Futures US exchange, unrefined sugar for October fell to 10.59 US cents a pound from 10.87 cents.
"The high prices along with continuing economic worries around the world, but especially in the EU and China, keep demand ideas weaker," said Price Futures Group analyst Jack Scoville. By Friday on Liffe, cocoa for delivery in December slipped to £2,036 a tonne from £2,043 a week earlier. On ICE Futures US, cocoa for December rose to $3,055 a tonne from $3,028.