US uncertainties drive up volume of commodities trade
Investors flocked to gold and copper
TOKYO/HONG KONG -- Commodities trading in major global exchanges edged up in the first three months of the year, against a backdrop of rising U.S. interest rates and uncertainty over President Donald Trump's economic policy. In particular, gold and copper markets saw an influx of speculative funds.
A total of 438.72 million units of futures contracts and options were traded in major commodities exchanges in the three months ended March, up 1.5% from a year ago. The Nikkei compiled data from the New York Mercantile Exchange, New York Commodity Exchange, Chicago Board of Trade, Intercontinental Exchange, London Metal Exchange, and Tokyo Commodity Exchange. LME is a subsidiary of Hong Kong Exchanges & Clearings.
Notably, gold, traditionally a safe-haven investment, was on an upswing in the first three months of 2016. "Investors' anticipation for tax cuts and infrastructure investment by President Trump has cooled off after the election," Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting wrote in a note on Tuesday.
He pointed to rising skepticism over the U.S. administration's policy management capability and geopolitical risks as factors supporting the gold market in the near term. In New York, the price of gold soared almost 10% to $1,251 per troy ounce by the end of March.
Tatsufumi Okoshi, senior economist at Nomura Securities, said that commodities markets were highly volatile in the first quarter because investors were reacting to U.S. rate hikes. The volume of gold futures traded on the New York Mercantile Exchange in the three months ended in March soared by 15% from a year ago.
The copper market was also active. A total of 5.87 million copper futures contracts were traded on the New York Commodity Exchange, or COMEX, in the first three months, a 25% increase from a year ago. High expectations for greater infrastructure investment under the Trump administration, combined with workers' strikes at copper mines in Chile, Peru, and Indonesia pushed up prices.
In other commodities markets, the price of crude oil futures was mostly unchanged in the period. While OPEC members started to reduce production from January, the number of active oil rigs has increased and oil stock has piled up in the U.S. "As it was rather difficult to determine the direction of overall supply and demand, investors may not have been able to bet on either side of the market," said Tsuyoshi Ueno, a senior economist at NLI Research Institute.
Crude oil prices were locked in a relatively tight range in the quarter. During the three months, the volume of crude oil futures traded at the New York Mercantile Exchange declined by 1% from a year ago, while North Sea Brent crude oil futures traded on the London-based ICE Futures Europe increased by just 2% from a year ago.
But market participants were upbeat on the outlook of commodities. Goldman Sachs maintained its "overweight" recommendation on commodities and said in a Wednesday report that it expected the 12-month forecast for its benchmark S&P Goldman Sachs Commodity Index to gain 4%. The investment bank sees rising demand for metals in China and OPEC's production cuts to bolster prices.
On the other hand, Chinese markets suffered a dramatic drop in the volume of commodities traded, in part due to the restriction of foreign fund flows. According to the China Futures Association, the total volume traded on the three commodity markets in Shanghai, Dalian and Zhengzhou between January and March was 673.7 million units, down 54% from a year ago. Total turnover fell 14% to 35.48 trillion yuan ($5.17 trillion).
"The main reason for the decline was the series of new regulations enacted by local commodity exchanges in order to reduce investment risk," said Ma Wensheng, vice president of the China Futures Industry Association.
Nikkei staff writer Mariko Tai and Nikkei Asian Review staff writer Kazumi Sakurada contributed to this story.