The Week Ahead for Commodities

The recent round of quantitative easing, (commonly referred to as QE3) has had mixed results on the prices of commodities. Since the Federal Reserve's announcement of the program on September 13, silver and gold have performed well. On the other hand, crude oil and agriculture commodities have not performed as well, with the exception of corn. While both gold and silver gained past few weeks, the upcoming week might see gold and silver showing little price movement. Kitco News Gold Survey interviews 21 precious metals market participants for their opinion if the price of gold will go up, down or remain flat. The survey revealed that 10 participants saw gold prices go up, nine saw prices go down and two saw prices move sideways. Market participants were made up of international precious metals bullion dealers, investment bank precious metals research desks, futures traders and technical analysts. The key element in the upcoming week's gold prices will be any developments in the eurozone. Additional elements to look for are the physical gold demand numbers coming out of emerging markets, as well as the affect of the U.S./emerging markets exchange rates on the price of gold. The Indian rupee has been getting stronger in the past weeks, and this coinciding with the upcoming wedding season in starting in late October, has improved physical gold demand, which could lead to higher prices in gold nearer the end of the month. This week will start with the gold/silver ratio being at 52.73:1, implying a 5.5 percent variance between the historic price difference between one ounce of gold and one ounce of silver. Historically this number has been 50:1, meaning fifty ounces of silver to one ounce of gold with a higher than 50:1 implying that gold is overvalued to silver and silver is undervalued to gold by 5.5 percent. The week will also start the week off with the fabled gold/crude oil ratio being at 19.08:1, below the 20:1 ratio of barrels of West Texas Intermediate Crude Oil to gold level that is considered by many oil traders to be the “magic” number. While there are arguments on both sides as to the validity of the gold/crude oil ratio, the number is watched closely by oil traders. The number implies a 4.8 percent increase in the price of WTI in relation to the current price of gold. The long grain positions that have built up during the summer have continued to be liquidated resulting in a strong sell-off at the end of the week as reported by CME Group CME. The rumor was that a large hedge fund was closing out its positions in agricultural commodities before going into the weekend. The facts seemed to confirm the rumor, as selling volume was strong. Look for news in the eurozone to affect the price of gold and silver in the upcoming week, while crude's price can be affected by geo-political concerns.