Weather-related factors were responsible for the biggest moves in individual commodity prices in the past week: a cold snap in the US drove up the cost of natural gas, while further rains across key growing areas of Brazil undermined the price of arabica coffee. Oil prices edged lower again as US stocks continued to climb. The prices of gold and (especially) silver continue to be buffeted primarily by speculation about the timing of the first hike in US interest rates.
Commodity markets are paying less attention to the risk that Greece might be forced out of the euro-zone. Most investors still view “Grexit” as unlikely, or at least have confidence in the ability of policy-makers to limit contagion if it does happen. “Grexit” may not be imminent, but these views seem complacent to us.
Thinking about the impact on commodities, the initial turmoil caused by “Grexit” would surely boost safe-haven demand for gold while undermining the prices of assets perceived to be riskier, including oil and industrial metals. But once the dust has settled, the break-up of a flawed monetary union might be the best outcome.
It could provide the least painful solutions to debt and competitiveness problems, allow policy to be loosened across the region and ultimately prove to be a positive for economic activity. In time, this should be reflected in the prices of industrial commodities too.
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