Commodities withstand global market volatility fairly well

Commodity prices have been declining in the last few months. The focus has moved towards the bear markets in equities. However, the relative stability of the prices of industrial commodity, particularly metals, in the last few weeks is still remarkable and reassuring. However, the rise in gold price might soon slow down.

Precious metals prices have increased, led by gold, indicating strong safe-haven demand. Industrial metals have also performed relatively well, while Brent crude price is above its January lows. The resilience of commodity prices in dollar terms has gained slightly due to the depreciation of the US dollar. However, the commodity prices scenario is the same when expressed in terms of euros.

Other factors are more important. Most of the industrial commodities' prices have already declined, leaving a wider scope for equities to decline. Indeed, commodity supply is already starting to be reduced after the earlier sharp declines in prices, whereas demand has been strong. Also, the shift towards negative interest rates should be clearly positive for commodities. However, they are not advantageous for bank stocks.

Most of all, the decline in equity prices looks to be majorly separate from economic reality. It is likely that the financial sector volatility will weigh on the activity. However, the relative toughness of industrial commodity prices might prove that economies are not slowing down.

"We are therefore happy to reiterate our end-2016 forecasts of $45 per barrel for Brent and $5,550 per tonne for copper (compared to current prices of around $31 and $4,445 respectively). In contrast, gold has already hit our (relatively bullish) end-year forecast of $1,250 per ounce, but we are not minded to revise this higher", says Capital Economics.

Actually, gold price seem vulnerable to a near-term correction if concerns regarding global economy begin to reduce and US interest rate rise comes back to the agenda.