Oil hits 2009 high above $78 - Gold slips back from record high

Oil hits 2009 high above $78 - Gold slips back from record high
By Chris Flood
Published: October 16 2009 11:47 | Last updated: October 16 2009 11:47
http://www.ft.com/cms/s/0/f3b74752-ba39-11de-9dd7-00144feab49a.html


US crude oil pushed above the $78 a barrel mark on Friday, reaching a fresh 2009 peak, while sugar prices rose and gold traded around the $1,050 level after hitting a record high earlier this week.

Nymex November West Texas Intermediate reached $78.17 a barrel before easing back to trade at $77.46.

ICE December Brent lost 30 cents at $75.94 a barrel.

Oil prices moved higher on Wednesday after US inventories data showed a larger-than-expected drop in petrol stocks last week, down 5.2m barrels, compared with a market forecast for an 800,000 barrels increase.

US crude stocks rose 400,000 barrels, below the consensus forecast for a 700,000 barrels increase.

Paul Horsnell of Barclays Capital said WTI prices had finally broken out of the tight $65 to $75 band that has been so dominant in recent months, and a transition to a $70 to $80 range was now in full cry.

“We do not think that this move is a radically different break and instead think of it as something more of a gradual transition into higher ranges,” said Mr Horsnell: “This still appears to us to be a market heading for relatively gentle upwards transitions in bands, rather than being primed yet for a more explosive break-out to the upside.”

Gold traded at $1,048 a troy ounce, moving between a high of $1,053.56 and a low of $1,045.05, after ending trading in New York on Thursday at $1,049.85.

Gold hit a record $1,070.40 on Wednesday, up 21.9 per cent this year with investor holdings in gold exchange traded funds standing at an all-time high while the net long position (bets on prices rising) held by speculators has also reached an all-time high.

Dan Smith, metals analyst at Standard Chartered bank, said there had been a notable shift in the perception of gold “from a marginal asset class to a key focus of investment decisions”.

Standard Chartered noted that sales of American Eagle coins by the US Mint had surged 40 per cent in September compared with August, suggesting that another upward leg in buying by western investors might be underway.

Mr Smith highlighted the substantial jump in gold buying by retail investors in western markets last year – from minimal levels in 2007 to 138 tonnes in the fourth quarter of 2008, at the height of the financial crisis, easing back to 39 tonnes in the second quarter of 2009.

“This new investment activity in non-traditional markets and the rise of physical ETFs appear to represent a paradigm shift for the industry,” said Mr Smith.

Weakness in the US dollar has also helped to push gold higher.

Standard Chartered said that the loss of confidence in the US currency was “rooted in the uncertainty” surrounding the Federal Reserve’s current monetary policy framework.

Christophe Duval-Kieffer, global head of quantitative research at Standard Chartered, said that uncertainty over the path that might be taken by the Fed was reflected in high volatility on the Eurodollar strip and the steep slope on the yield curve for inflation-linked instruments.

“As long as risks associated with excess liquidity prevail, demand for gold as a typically ‘hard’ asset will benefit,” said Mr Smith.

Sugar prices rose with Liffe December white sugar up 1.6 per cent at $605.9 a tonne, while ICE March sugar added 1.3 per cent at 24.15 cents a pound.

Kona Haque of Macquarie said the sugar market could see another leg-up early in 2010 once Brazil’s harvest was completed and India’s stop-gap measures to control its domestic market have run out of steam.

“The global sugar market remains structurally tight as we begin the 2009/10 season,” said Ms Haque. “With a host of importing countries still facing sharp domestic deficits, additional import requirements remain large and as yet unsatisfied.”

“The world will have to rely on rationing demand, and the way you ration demand is through high prices,” said Michael Coleman, managing director of Aisling Analytics, which runs a $1.5 billion fund invested in agriculture and energy.

Cocoa prices dipped as traders digested the latest US grindings (wholesale demand) data which showed a fall of 0.5 per cent in the third quarter compared with the same period last year. Liffe March cocoa slipped 0.89 per cent to £$2,130 a tonne.