Wednesday, February 27, 2008

Inflation fears – commodities are generally considered a hedge against inflation

Oil hits $102 for the first time

The price of oil has hit a record high for the second day running, touching $102.08 a barrel for US sweet crude. However, the figure is still surpassed in inflation-adjusted terms by the peak of $102.53 reached in 1980, the International Energy Agency says. The oil price surge is supported by traders switching their cash out of shares and currencies and into commodities, traders say. Fears that producers' cartel Opec will cut supply have also been blamed.

Posted by jack c @ 10:54 AM (3007 views)
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14 thoughts on “Inflation fears – commodities are generally considered a hedge against inflation

  • “Commodities are generally considered a hedge against inflation… we are therefore seeing these strong prices that have really little to do with oil market fundamentals

    Victor Shum, energy analyst”

    The trouble is, the inflation is being caused to some extent by all the hot money flowing into the commodities. All the ETFs must be affecting things. It would be interesting to know what the actual demand is, compared to the investment demand.

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  • What was the length of the duration of high energy prices leading into that high in 1980?

    Was it consistently high and climbing steadily for a number of years?

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  • Both gold and especially silver are looking overbought
    http://www.kitcosilver.com/charts/24hoursspot.html

    Anyone with a bullionvault account would have received this email this morning.
    “This week BullionVault is making a rare return of gold bullion to the main markets, taking us just below six tonnes – twice what we held in October.”

    Just sold 20pc of my holdings. Maybe – finally – we will see this Elliott wave 4 correction down to 870.

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  • “the length of the duration” … “might possibly probably be”

    sorry … was at speed.

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  • @s2r – yes, am wary of this (gold) market at the moment, just looks rather toppy to me too – rising wedge top.http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns:rising_wedge_reversa

    Am out of 10% on stop below yesterdays low, which i will ratchet up on a daily basis. Might trade short if that happens and followed by a pullback, depending on pattern.

    Will run the other 50% though. Through to the 23 Dec 2012??!??

    @Jack – have taken a quick look at the short side of the market. For yesterday 3 month case LIBOR was 5.68125 against base of 5.25, that gives implied Short Sterling of 94.31875, close of short sterling was 94(.)30 and it hasnt moved much lower than that, so am not sure where this .25% increase rumour comes from, have you started it ;-). Now Short Sterling (March) was discounting a 5% LIBOR (high of 22nd January 9495) , so since then it has come down ( rates to increase). But thats probably because then they were discounting further falls rather then now discounting increases.

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  • ” have taken a quick look at the short side of the market. For yesterday 3 month case LIBOR was 5.68125 against base of 5.25, that gives implied Short Sterling of 94.31875, close of short sterling was 94(.)30 and it hasnt moved much lower than that, so am not sure where this .25% increase rumour comes from, have you started it ;-). Now Short Sterling (March) was discounting a 5% LIBOR (high of 22nd January 9495) , so since then it has come down ( rates to increase). But thats probably because then they were discounting further falls rather then now discounting increases.” @techieman

    What does all this mean? I am sure that everyone on this site has begun to take more than a passing interest in commodity prices and exchange rates, but I believe we are not all involved in trading etc. So, i am interested in understanding your predictions – please help.

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  • ok Sorry bystander. basically you can trade the future “price” of London 3 month interbank offered rate or LIBOR. Short sterling is a futures market which has a cycle of March June Sept Dec. So you can trade LIBOR for delivery in March, in other words you can trade it now based on what you think the price will be on a delivery date in March. LIBOR is quoted the same as a normal rate – so bank base is 5.25% but 3 months LIBOR is 5.68125%. Short sterling contract size is is for a fixed amount of money nominal, and the pricing is 100 minus the rate. So if the rate was 5% the short sterling would be 95, 6% – 94 etc, Because the market trades in increments of 100ths of 1percent, a rate of 5% = 9500. For example if you buy @ 9500 (thinking the interest rates are heading LOWER) and they do move lower (or the markets think they will move lower) by say 1% you can sell at 9600. Because its based on a nominal amount of money “invested” you trade the future and make or lose £12.50 per individual 100th – or per tick as its known. Of course this can be used as both a hedge and a speculation. Its the same sort of thing as the futures on Oil. Hope that helps.

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  • tyrellcorporation says:

    LOL!… excellent Techieman… I’m off for a Scotch now! 😉

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  • I don’t doubt there is truth in there, but it’s intersting that they are able to calculate the equivalent real price in 1980 so precisely.
    The quoted $102.08 is for the “Generic 1st ‘CL’ Future” [a combination of near-term futures] on WTI Crushing Crude.
    This market did not exist in 1980, it started in 1983!
    Adjusting using the U.S. standard of inflation – the CPI, one may observe that there was a massive peak in 1989 and that the real price has been rallying since this was surpassed in 2004.

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  • Thanks a lot techieman – it is like learning a whole new language, but definitely worth the effort.

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  • Oil is distraction, look at Google’s Price & Gold from November 7th 2007.

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  • Commodity Inflation – “I think it is something that the Fed has to watch, but I am not alarmed,” said retiring St Louis Fed chief William Poole, in reaction to news that the US consumer price index hit 4.3%, a 17-year high in January. “We can conclude that the current situation is one of substantial stability of inflation expectations. Recent relatively small increases in inflation are apparently due to transitory factors, and not to changes in inflation expectations…But the charts don’t lie, and sophisticated traders are not easily duped by the Fed’s smokescreens and brainwashing techniques.” Who is Blowing Bubbles in the Commodity Markets?.

    I hope you chaps who are selling gold don’t regret it. Gold is actually lagging behind other commodities. I am still buying… just this week in fact.

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  • the people in Indian call centres speak English I believe – but I have a hell of a job understanding what they say…

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  • @techieman (5) – thanks for the info, much appreciated – no I’m not starting the rumour (LOL) looks like Bernanke regarding the US rates though – see my latest post. Regards Jack.

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