By Chris Flood
Published: December 11 2008 12:43 | Last updated: December 11 2008 20:12
Gold prices hit an eight-week high on Thursday as the dollar staged a broad-based retreat amid fears that the US carmaking sector could still face bankruptcy as a scaled-down government rescue package faced opposition from Republican senators.
Gold surged to $833.80 a troy ounce, its highest level since October 16, before easing back to $825, up 2.1 per cent on the day.
Suki Cooper of Barclays Capital said gold should move towards the $900 level in the coming months but the current rally was only likely to be sustained if an additional catalyst emerged or if the dollar continued to weaken against the euro.
Traders have been hearing talk that the gold market could face a potential squeeze at the end of this year if market participants with futures position on New York’s Comex exchange decide not to roll over their positions, because of concerns about counterparty risk and opt for physical delivery instead. But dealers dismissed the threat of a squeeze, pointing out that Comex gold stocks stand at 8.5m ounces, well above the five-year average of almost 6m ounces.
In Chicago, agricultural commodities were mixed after the latest update from the US Department of Agriculture.
CBOT December corn rose 6¼ cents to $3.33 a bushel even though the USDA cut its demand forecast to 12,185m bushels from November’s estimate of 12,535m bushels.
The USDA cut its forecast for corn consumption by the ethanol sector by 300m bushels to 3,700m bushels, reflecting the difficulties facing the refining industry, with US demand for petrol expected to fall in 2008 and 2009.
Lewis Hagedorn of JPMorgan said the USDA had been “implausibly optimistic” in its assessment of corn consumption by ethanol refiners. But he highlighted the downward revision in corn export demand, from 1,900m bushels to 1,800m bushels, as significant.
“US corn has been unable to sustain world buying interest”, he said, adding that competition from record wheat supplies meant corn was less competitive as a source of animal feed.
CBOT January soyabeans increased 20 cents at $8.49½ a bushel after the USDA cut its forecast for Brazilian production by 1.5m tonnes to 53.5m tonnes, seen as significant because is below the Brazilian agriculture ministry's current projection.
CBOT December wheat traded unchanged at $4.95 a bushel after the USDA revised its forecast for the global crop up 1.5m tonnes to a record 683.98m tonnes, helped by a larger Canadian crop.
Oil prices surged after Russia’s president said he was willing to work with Opec on possible supply cuts.
Nymex January West Texas Intermediate rose $4.46 to $47.98 a barrel after touching a high of $48.35 while ICE January Brent gained $4.99 to $47.39 a barrel.
Expectations that Opec would announce a substantial supply cut were strengthened by the International Energy Agency’s latest report, which said global oil demand would contract in 2008, the first annual decline for 25 years. Theenergy watchdog of the developed world said Opec had only complied with about half of the output re-ductions already agreed. But Ali al-Naimi, Saudi Arabia’s oil minister, said the kingdom pumped 8.49m barrels a day of crude in November, in line with its Opec target and below the IEA’s estimate of 9.05m b/d last month.