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South Africa: Dollar Lights a Fire Under Commodities
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Business Day (Johannesburg)
12 May 2008
Posted to the web 12 May 2008
Renée Bonorchis
Johannesburg
COMMODITY prices surged on Friday, with platinum hitting a seven-week high and crude oil cruising to new records.
In part the rush on commodity prices was due to a weakening dollar, which fell in response to the UK and Europe keeping their interest rates on hold.
Simon Hudson-Peacock, head of equities at Cadiz African Harvest Asset Management, believed the dollar was the primary driver of commodity prices, particularly with the US Federal Reserve having cut interest rates, but now only expected to cut one more time in this cycle.
But Bloomberg also noted that platinum had been pushed along by the introduction of two platinum-based financial instruments on the New York Stock Exchange. For the past month, though, platinum's performance has been lacklustre compared with its roaring start to the year. On Friday the price of the metal had gained more than 36% in the year to date.
"The platinum price has its own issues," Hudson-Peacock said, "including the breakdown of its historical relationship with gold.
"Platinum was strong in March on the back of the Eskom power outages. But the lack of further bad news and some positive news about the platinum miners' ability to produce the metal despite Eskom, moved platinum back closer to gold."
Hudson said that the physical buying season for gold was over and this time of the year was usually very quiet for the yellow metal.
As for oil, it was the usual story -- supply concerns. Data showed that in Nigeria, which exports mostly sweet crude oil, production fell to the lowest level in a decade last month. Production has been further disrupted this month thanks to attacks on Royal Dutch Shell pipelines. A number of sources, including the Organisation of Petroleum Exporting Countries and Goldman Sachs, have said oil could hit $200 a barrel this year.
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The roaring commodity prices sent the JSE all share index higher, touching new records above 32400 points in intraday trade. Some of the biggest gainers were Labat, the Value Group and DRDGold. Sasol has benefited in the past week, what with oil prices showing their largest weekly gain in more than a year. On Friday afternoon Sasol was just a few rand away from its record high at R487 a share.
The rand, however, did not pick up on the good commodities news and it lost ground against all of the major currencies on Friday.
Hudson-Peacock said that earlier in the week the rand gained on the news that leaked about a potential merger between India's Bharti Airtel and MTN. "But that's gone quiet so there has been no further support for the local currency," he said.
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