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Commodities rallied due to external factors as the Syria threat in the case of Crude oil or the Fed tapering delay in the case of gold. It is not necessarily from any convincing evidence of a sustained improvement in ..

26 Sep 2013

LONDON (Commodity Online): Commodity benchmarks are on course in Q3, 2013 to the biggest quarterly gains in a year however, Barclays cautions that it is not due to any real recovery in the global economy. Commodity returns were boosted with the easing of a number of potentially negative factors and the emergence of the some idiosyncratic risks in specific markets such as oil, rather than any convincing evidence of a sustained improvement in the demand environment.

"With the list of issues and events that could potentially wrong-foot investors now a little shorter and positioning much cleaner, we see outcomes for commodity markets in Q4 tied to three key themes," Barclays said:

-Fed tapering, when it finally arrives (we forecast December), will play out in different markets in different ways. Base and precious metals were among the biggest gainers on the Fed’s surprise decision not to start tapering yet. That suggests that in the run-up to the September FOMC meeting, market participants were short in both sectors, sceptical that QE had yet had its desired impact in boosting growth and that pricing pressures in the global economy were well contained. The risk is that if the global growth outlook does not improve considerably and soon, the same commodity markets will again be downgraded as tapering approaches once more.

-The global economy is still stuck in a low-growth, low interest-rate environment, traditionally a part of the cycle when commodity prices struggle to make consistent gains. Positively for commodities, the risks of a China hard landing have receded, but the recent pick-up in activity is likely to prove short-lived as the government’s boost to lending fades. Moreover, with other important emerging market consuming countries also looking fragile, we suspect that any Q4 rally in growth-sensitive commodities like base metals will prove difficult to sustain.

-The ongoing de-linkage of commodity prices with broad macroeconomic trends as individual market fundamentals regain their influence on price means the diverse performance of different markets should continue. In particular, with commodity demand subdued, supply trends are likely to retain a lot of leverage over price direction in Q4. The geopolitical dimensions of oil supply set against a backdrop of lost output and limited OPEC spare capacity present significant upside price risks. However, in other markets, especially base metals, supply is still expanding fast and that is likely to limit any improvement in fundamentals, even if economic growth does continue to pick up.

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