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Commodities prices were ending the week stronger on signs of Europe being on a firmer footing, and China’s inflation being under control. However, markets fell on Friday with the renewed threat that Standard & Poor’s would downgrade France and other European nations.
By Shihoko Goto – Exclusive to Resource Investing News
Following a strong week for commodities on growing confidence in Europe’s ability to tackle its debt crisis, markets fell on Friday with the renewed threat that Standard & Poor’s would downgrade France and other European nations. The announcement from S&P is expected after market close at 9:00 p.m. GMT. A slowdown in demand for energy, copper and gold is expected from China, as the Chinese prepare to welcome in the Year of the Dragon January 23.
This week, market confidence has been buoyed by Italy’s performance on the bond market as it sold 3 billion euros of bonds maturing in November 2014 to yield 4.83 percent, compared to a yield of 5.62 percent at an auction two weeks ago. It was the lowest yield at a three-year auction since last September.
Italy’s performance certainly backs European Central Bank President Mario Draghi’s confidence for the continent, as he said at a press conference in Frankfurt on Thursday that the ECB’s injection of cash into the financial system in December is beginning to soften up credit markets. Draghi added that there were “tentative signs” of the European economy getting back on track.
In China, meanwhile, inflation reached a 15-month low with consumer prices rising 4.1 percent from a year ago, according to the National Bureau of Statistics Thursday. With inflation fears abating, many analysts expect Beijing to be able to consider easing monetary policy and expanding the economy. Still, as China prepares to celebrate its biggest holiday season, Chinese markets are expected to be quiet later this month.
Early Friday, Brent crude was 0.2 percent weaker at $111.06 a barrel, while copper was down 0.5 percent at $3.63 a pound, and gold was 0.4 percent lower at $1,641.50 an ounce.
In the energy market, hopes that an embargo of Iranian oil supplies will be delayed have been offset by a rebound in the Eurozone’s outlook. Geopolitical risks do, however, persist.
Goldman Sachs reported that prices in 2012 are likely to rise “given the stronger fundamentals and recent events surrounding Iran and Nigeria.” Labor unions in the African nation said they will continue to strike, which could disrupt supply from the largest exporter on the continent. The investment bank also stated that “in our view, it is only a matter of time before inventories and OPEC (Organization of Petroleum Exporting Countries) spare capacity become effectively exhausted, requiring higher oil prices to restrain demand, keeping it in line with available supply.”
On the corporate front, Petroleo Brasileiro, better known as Petrobras, will accelerate reserve growth over the next four years as it deploys more production equipment in deep waters of the Atlantic Ocean, said CFO Almir Barbassa in an interview with Bloomberg. The Brazilian oil producer’s CFO added that the company expects to receive 19 production platforms by the end of 2015.
Demand for copper is gaining ground amid greater confidence in Europe’s economic prospects and on signs that Chinese inflation is under control. The red metal reached a two-month high Thursday as a result.
Frontier Mining (LSE:FML) has secured a $29 million financing arrangement to develop its Benkala copper mine in Kazakhstan as its subsidiary, KazCopper, will receive a $20 million investment loan and a $9 million working capital credit facility from Russia’s Sberbank.
Meanwhile, AXG Mining (ASX:AXC) reached an agreement with Lara Exploration(TSXV:LRA) to explore the Andahualyas-Yauri mineral field of southern Peru. The field has several mines including Tintaya, Las Bambas, Antapaccay held by Xstrata (LSE:XTA), Constancia held by HudBay Minerals (TSX:HBM), Haquria held by First Quantum Minerals (TSX:FM), and Quecha Project of Pan Pacific Copper Company.
As for gold, it posted its biggest two-week rise in two months as low interest rates keep demand for the yellow metal strong. The Shanghai Gold Exchange said on Friday it will temporarily raise margins and daily trading limits for its gold and silver forward contracts before the Chinese New Year holiday from Jan. 20.
US Gold Corp‘s (TSX:UXG) CEO Rob McEwen said he sees gold rising above $2,000 in 2012 and above in coming years amid continued worries about the global economy, according to Reuters.
“Gold shares are undervalued and the gold price is going higher because of all the financial uncertainties. You will see a continued shift of investors putting more of their portfolios into gold… it’s on its way to $5,000 in the next three or four years,” McEwen said.
Au Rico Gold (NYSE:AUQ), meanwhile, released its preliminary fourth quarter results, projecting revenue of $154 million, up 38 percent from the previous quarter, and production reaching 72,119 gold ounces.
I, Shihoko Goto, have no interests in the companies mentioned in this article.