Capital Economics’ Jessop: Commodities Likely in Sustained Downtrend

Tuesday, 23 Apr 2013 08:50 AM

By Dan Weil

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The recent drop in commodity prices probably isn’t over, says Julian Jessop, chief global economist for Capital Economics in London.

The S&P GSCI commodity index has plummeted 6.8 percent so far this year. Gold in particular has taken it on the chin, falling 15 percent.

This commodity slump comes after a buoyant decade. From 2000 through March, the S&P GSCI gained 9.6 percent a year, according to Bloomberg.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

Jessop tells The New York Times that gold will likely rebound as an alternative to currencies like the dollar. But most other commodities will probably continue their descent for a period, he says.

The Federal Reserve’s massive easing program was responsible for much of the commodities rally over the past few years, Jessop explains.

But the easing is now boosting other asset classes, such as stocks, more than commodities, he notes. In addition, negative news from the eurozone and China will probably hurt commodities more than equities, particularly in the United States.

Stocks “represent a claim on the cash flow of corporations for years to come, and those long-term flows aren’t as economically sensitive as commodities are,” Jessop notes.

As for gold, speculators apparently haven’t given up on the precious metal. They increased their net-long positions in gold by 9.8 percent to 61,579 futures and options contracts on U.S. exchanges in the week ended April 16, according to the U.S. Commodity Futures Trading Commission.

“Given the price action, this rise in holdings was pretty surprising,” Dan Denbow, a manager of the USAA Precious Metals & Minerals Fund, tells Bloomberg.

“People may have been looking to get back into the market and are taking advantage of the price to do so. There are people who still have a long-term belief in it. Physical buyers have also stepped up.”

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

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