Can Commodity Prices Resist Further Dollar Strength?
It is important to look at the reasons for U.S. dollar appreciation to see where commodity prices - and gold prices - are headed, said one UK-based research firm. “To be clear, a stronger dollar, in isolation, will usually undermine commodity prices. But other factors can be more important and the implications for individual commodities may vary considerably,” said Julian Jessop, head of commodities research at Capital Economics, in a report released Tuesday.
“While the price of gold has recently fallen back again, it has held up much better than the surge in the dollar might have implied. This illustrates the scope for individual commodities to decouple at least partially from the U.S. currency, reflecting specific fundamentals of demand and supply,” he added.
Looking at commodities as a whole, Jessop suggested that oil and industrial metals can still post gains if the appreciation in the U.S. dollar is a reflection of a strengthening U.S. economy that will lead to an eventual recovery in global demand for these commodities.
According to Jessop, commodities and the dollar could rise simultaneously if markets see a global recovery, and if, for example, fears of a “hard landing” in China begin to fade.
For gold, however, the scenario in which both gold and the dollar would rise in tandem would be slightly different, he said.
“Another scenario, more favorable for precious metals, would be one in which the crisis in Greece escalates again, driving safe-haven flows into both the dollar and gold,” he said. “We suspect that elements of both scenarios will feature in the next few years.” |
