Factors have been conspiring to take the commodities market on a stiff ride—downward. Nervous investors have watched everything from oil and natural gas to sugar, industrial metals and even precious metals plunge, with some items hitting price levels not seen in more than a decade.
Oil, of course, has been in the headlines for months as its price has moved downward, but there’s plenty of other turmoil bedeviling investors. Some of the downward pressure has come from the possibility—or threat—of the Fed raising interest rates at long last, which would boost the dollar against gold. But there are other forces at work, too. A slowing economy in China has lessened demand for raw materials, but it’s not just China—and it’s not just the slowing economy.
Here’s a look at 6 conspicuous sufferers investors should be watching, and what’s happened to them.
1. Oil and natural gas:
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No surprise here, oil has been headed downward for months—and taking natural gas with it, since cheaper oil puts pressure on gas obtained by more expensive extraction methods like fracking.
While we’ve talked about falling oil prices before, there’s a new factor in play: the Iran nuclear agreement. Iran says that, within days of sanctions being lifted, it can be back in business, increasing oil production to reenter world markets. Since OPEC has already said it doesn’t plan to accommodate Iran in export markets, Bijan Namdar Zanganeh, Iran’s oil minister, has predicted that oil prices will fall.
Although the country’s oil industry isn’t expected to feel the benefits of market reentry till November, and banks including Goldman Sachs Group Inc. and Citigroup Inc. have said that oil markets across the world won’t really feel the effects either till 2016, the re-entry of such a major player in the field is unlikely to go unnoticed—particularly since some market experts are talking about the potential for $40 oil.
2. Gold, Platinum, Palladium:
Gold has been taking a beating. In fact, it has lost so much that it hit price levels it hasn’t seen in five years.
Not only has its price plummeted, Macquarie Group Ltd. said in a report that it might not be done yet; further losses could be on the way. In its report, it said, “Gold has always had a dual nature as a currency and a commodity. At present, it is not desired in either form.”
Of course that’s bad news not only for goldbugs but also for those who invest in the mining companies that are also hurting from the drop in price. Barrick Gold Corp., for instance, which is the world’s largest gold producer, was so hard hit in late July that one week it saw its share price decline at a rate not seen since 1989.
While the potential for an interest rate hike by the Fed has cost gold a lot of its value even as it increased the value of the dollar, China’s offloading of lots of its hoard helped the price fall. In addition, the news in July that China’s gold reserves were considerably lower than the market had previously believed pushed the price even lower.
Platinum and palladium may not have fallen as far as gold, but oversupply and weak demand have taken their toll. Platinum’s presence in catalytic converters for diesel engines leaves it prone to weaker economic conditions in Europe, where diesels predominate, but palladium is used more in gasoline engines in both China and the U.S., and thus suffers under China’s slowing economy.
3. Copper and other industrial metals:
Not only has China’s slowdown hit copper, but it’s a harbinger of things to come—since copper is often viewed as a bellwether for potential growth in the global economy. And that bellwether is tolling down, down, down.