Gold, Oil & Indices (Equity & Bond Indices)

Q, interesting article on oil/copper !

A trade to defend against China slowdown
By Javier Blas

Bullish long-term oil; bearish long-term copper. The relative value trade is one of the hottest in the commodities markets as a three-year forward bet against China.

This trade is one of the handful that strategists are developing as the so-called commodities supercycle that has dominated the market for the past decade, moves to a softer phase that I call a less-super commodities supercycle. <="" br="">

As China heads into a sustained period of slower and less commodity-intensive growth, investors are growing increasingly worried about the predominance of bullish bets for commodities prices and are seeking alternatives.

The argument in favour of the oil-copper trade as explained by Julien Garran, commodities analyst at UBS in London is that copper is far more dependent on Chinese economic growth than crude oil. China acounts for 26 per cent of the global consumption of the metal, while only 6 per cent for oil. Moreover, while the Opec cartel defends a minimum price for oil, only the laws of supply and demand apply for copper.

In short, the Opec price cartel should be better placed to stabilise pricing than the fragmented copper industry, says Mr Garran in a research note to clients.

Over the past year, spot crude oil prices have fallen 14.5 per cent, while copper prices are down 18 per cent over the same period. Forward-prices have fallen by similar levels, suggesting that the relative value commodities trade is already delivering some returns.

The trade which has been popular among hedge funds for a while already has its risks, nonetheless. Some investors are indeed taking the opposite view, bullish copper and bearish oil as they believe that in a three to five-year horizon oil has more downside.

There are two main risks for the bullish oil-bearish copper trade.

On the one hand, China could support copper prices over the medium-term buying for its strategic reserve, as it did during the 2008-09 financial crisis. Meanwhile, miners are slowing down their expenditures in new projects threatening the surplus that most analysts have penciled in on their medium-term supply and demand forecasts.

On the other hand, the political cohesion that Opec has showed over the past decade could be threatened by political infighting in the near term, as Saudi Arabia and Iran diverge. On top of that, the surge in US production already at the highest in 14 years due to the shale revolution could create a glut of oil in the Atlantic basin, putting pressure on prices.

completely screwed gold, dah.

caught oil short from 82.30 triangle break

CL is very weak in its normal correlation to SPX. I been expecting a deeper ret up before turning back down to visit 71 level. Daily chart shows tight ranging triangle formation with bulls looking for break above 87 and bears break below 81. Meantime its in no-mans land. Higher risk would be to take the break of the triangle with tight stops.

I don't know what Ashraf figures for gold immediate future. I kinda feel more upside and a break above 1640 level would target 1660 to 1672 cluster of potential resistance