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Financial Times: Gold and oil rise to hit record highs

By Chris Flood
Published: February 29 2008 02:00 | Last updated: February 29 2008 02:00

Gold and oil both achieved record levels for a second consecutive session yesterday while wheat markets saw further volatility after news of a commodities trader at MF Global who substantially exceeded his authorised trading limits.

The dollar’s weakness has been widely cited as a key driver of the present rally. But analysts at Barclays Capital disagree. “Commodity prices are going up in all currencies. Supply losses, strong demand and low inventory levels are the key drivers, not exchange rates,” said Barclays.

Gold hit a record $967.30 a troy ounce, supported by dollar weakness, concerns about inflation and the deteriorating outlook for the US economy. Bullion rose 0.8 per cent to $965.60 by the end of European trading.

In the oil market, Nymex April West Texas Intermediate surged $2.95 to $102.59 a barrel, surpassing the $102.08 peak reached in the previous session. ICE April Brent also pushed past the $100 level, jumping $2.63 to $100.90 a barrel.

Speculative buying and news of a small pipeline leak in Nigeria provided support. However, the main focus for traders’ attention remains next week’s Opec meeting in Vienna amid mounting confidence that the cartel is unlikely to cut supplies with oil prices trading at about $100 a barrel.

Harry Tchilinguirian, senior oil market analyst at BNP Paribas, said there was “no credibility” in Opec arguing for a cut in supplies on expectation that demand will soften in the second quarter.

Mr Tchilinguirian said: “Crude demand will be rising in the second quarter as Atlantic Basin refiners emerge from maintenance and increase production ahead of peak summer demand.”

Saudi Arabia could even push for a supply increase of 0.5m barrels a day, according to Mr Tchilinguirian, who said this would be a public gesture to address consumers concern without sparking a significant price correction.

In base metals, copper added 0.9 per cent at $8,510 a tonne, supported by a fall of 1,750 tonnes in LME stocks and talk of strong demand from China. Market speculation that copper will exceed its $8,800 peak is gathering steam, while aluminium, up 1.6 per cent to $3,140 a tonne, is also thought likely to breach its previous record of $3,300 if production problems in China persist.

Nickel jumped 5.8 per cent to $30,899.8 a tonne as hedge funds closed out short positions on concerns over a strike at BHP Billiton’s Cerro Matoso ferronickel mine in Colombia, which accounts for about 4 per cent of global nickel supply.

Tin hit a record $18,900 a tonne before easing back to $18,700, up 4.2 per cent on the day, on concerns over supplies from Indonesia and the Democratic Republic of Congo. Zinc rose 3.5 per cent to $2,780 a tonne, extending its gains after a jump of 7.6 per cent on Wednesday, helped by short-covering and buying by short-term momentum players.

Wheat prices remained volatile after seeing wild gyrations in Wednesday’s session due to the unwinding of the MF Global trader’s positions. CBOT March wheat fell 98½ cents to $11.80½ a bushel.

Exporters will be able to resume shipments from Kazakhstan, one of the world’s largest grain suppliers, after depositing quantities of wheat into government warehouses. Reports suggested Kazakhstan would follow Russia in imposing export restrictions.

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