Ultra-bearish call on copper, oil prices
Despite falling to a one-month low on Monday after three straight weeks of declines, year to date gold is holding onto a 15% gain, silver and platinum are up 10% while copper’s trading more than 15% higher than its January lows.
Industrial metals have all advanced in 2016 led by zinc which has jumped by more than 20% in three months. Volatile iron ore at $55.20 on Monday is the best performer with a more than 30% jump this year while the improvement in oil prices to around $40 a barrel has underpinned the broad rebound in commodities.
According to a new note by investment bank Barclays quoted by the Telegraph, these returns are not likely to last and the $20 billion that flowed into commodity investments in January and February (a five year high) could just as easily flow back out again.
The strong gains year to date are not supported by fundamentals and “could make commodities vulnerable to a wave of investor liquidation that we estimate could, in a worst case scenario, knock as much as 20-25% from current price levels,” for oil and copper according to Barclays:
“We very much doubt that recent large inflows to commodity investments are the start of new wave of enthusiasm for long-term, broad-based exposure. Given the weakness of underlying fundamentals, we suspect that the latest move into commodities by investors may be closer to its end than its beginning,” it said.