Commodities, Crude Oil and Gold Futures Trading - Monthly Review February 2011
The regular monthly spread trading review from IG Index.
The Month Ahead
Crude Oil and Gold Spread Betting Markets Set to Continue Driving Market Volatility
Global stock markets resumed their upward paths in early February after a slight wobble towards the end of January.
However, the customary spectres plaguing global economic recovery, such as inflation and unemployment, were put firmly on the back burner as political tension unfolding through North Africa hit Libya.
With Middle Eastern supply suddenly in question, US crude oil erupted above the $100 per barrel mark for the first time in nearly two and a half years. And as conflict continued to escalate, it was not surprising that investors developed an aversion to riskier assets, causing stock markets to drop.
The trend looks set to continue through March as risk-averse traders remain concerned about the prospect of political instability spreading through other OPEC states. What’s more, if these worries mean oil prices continue at their current lofty levels, the pace of economic recovery is likely to be affected in the months ahead.
With so much uncertainty, further increased cross-market volatility is possible, which could ultimately obstruct the upwards momentum that stock market indices have recently enjoyed.
Looking closer to home, the UK is still challenged by relatively high inflation standing at double the 2% target and a stuttering economic recovery.
The Bank of England faces a difficult decision over interest rates, with the situation further complicated by the latest GDP revision.
Figures released from the ONS revealed that GDP in the final quarter of 2010 was actually worse than first reported, standing at -0.6%. Analysts are expecting a final revision of the GDP data on 23 March, which is also Budget Day for the UK.
Whilst this is an important event on the political calendar, the affect on the spread betting markets could well end up being fairly negligible with so much happening on the world’s geopolitical stage.
Crude Oil Spread Betting Report
US Crude Oil Trades Above $100 per Barrel
The price of oil spent the majority of 2010 trading range-bound but picked up towards the end of year, ultimately pushing out to its best levels since October 2008.
This raised the threat once again of oil moving out into triple digits and, although recent breaches above $100 barrier have proved short-lived, very few of us would have expected to see this benchmark hit so quickly.
Oil prices are clearly factoring in a significant risk premium at the moment, with concerns about possible further unrest in other countries affecting supply. Not surprisingly we have seen increased day to day volatility, with one day at the end of February seeing a range in excess of $7.
Oil is likely to continue to be an event-driven market in the month ahead. Many traders will be keeping a wary eye open during March given the major knock-on effect on the performance on other assets such as UK shares.
Gold Spread Trading News
Gold Recovers Towards Highs as Investors Seek Safe Havens
The unrest in Egypt towards the end of January proved to be the catalyst that stopped the latest correction in the gold spread betting market. As tensions spread through the region, gold was once again confirmed to be one of the few assets where investors felt safe.
Predictions regarding any peak to the near-decade long rise of the yellow metal look premature, with prices flying above $1420 per ounce. The precious metal even looks to be eyeing the record highs of $1430 per ounce achieved at the end of 2010.
As with oil, we should be prepared for bursts of volatility in the month ahead as world events unfold. Many chartists would take the view that the most recent leg of the long-term uptrend remains intact, as long as gold remains above $1300 per ounce.
The above comments do not constitute investment advice and neither IG Index nor Clean Financial accept any responsibility for any use that may be made of them.
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'Commodities, Crude Oil and Gold Futures Trading - Monthly Review February 2011' edited by IG Index, updated 08-Mar-11
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