International Scientific Conference “Whither Our Economies” November 16 17, 2011
1.
Business Development
Business System Economics and Management
CO CHAIRS:
Dr. Dušan Baran Dr. Jogaila Mačerinskas Dr. Iveta Šimberova
SECRETARIES:
Laura Aidukien÷ Migl÷ Černikovait÷
6 International Scientific Conference “Whither Our Economies” November 16 17, 2011
COMMODITIES MARKET DEVELOPMENT
Dušan Baran
European Polytechnic Institute Ltd. Czech Republic e mail [email protected]
Abstract. Commodities, whether food, energy, metals and chairs they are sitting on are real, tangible things that are part of our everyday lives. All have different characteristics, different supply and production criteria, demand and other uses. The main commodities traded on major world exchanges with business volumes significantly exceeding the volume of stock exchanges. In addition to these exchanges, large producers and consumers also traded increasingly small investors. This article shows the dynamic of commodities prices and identifies factors influencing this change. There are a lot of investment opportunities in commodities market both for conservative investors and investors accepting a high level of risk. Keywords: Commodities, business, investors, development, markets, precious metals, agriculture, inflation.
Introduction
Over the last 130 years, humanity has been witness to several growth commodity trends, each lasting an average of eighteen years, and about the same time, then declined. In the penultimate commodity boom in the years 1968 1982 experienced a surge in commodity prices. Many of the commodity prices reached their historic highs. But with every boom comes bust and this boom was no exception. After some 20 years of bear market reached the end of the nineties, global commodity prices have bottomed. After the Internet bubble burst in 2000, a dramatic increase in demand for raw materials from emerging markets and insufficient supply, but also to the monetary policy of central banks, commodity prices began to rise significantly again. Given that the markets were growing and becoming much more attractive asset for many funds, but also retail investors. By this time, the commodity markets from the perspective of small investors, the black sheep of the family investment small banks serving niche markets, consumers and producers to provide price risk management. The growth of interest in commodity markets by retail investors contributed electrification markets. The revolution in computer technology has changed a method and system of trading, compared to previous periods of electronic trading platforms for all market participants yielded the same access to business data, flexibility, the market is, more liquid, efficient, investors will get the best price, margins are lower, the market disappeared many dealers who retail investor beggaring. The aim of this article is to analyze recent trends of commodity market. To reach this aim, prices of commodities (precious metals and agriculture products) are analyzed. Factors influencing commodities prices are identified. Analysis of recent trends and factors of commodities market allows predicting price development and identifying investment opportunities. In this article these methods are applied: analyses, syntheses, comparison, deduction, induction and graphic methods.
1. Prediction of Development Market Commodities
Future development in commodity markets depends on many factors. One of the most important factors are: • monetary policy of central banks • supply and demand
7 International Scientific Conference “Whither Our Economies” November 16 17, 2011
Most commodities are traded globally in dollars. Important role in commodity prices and U. S. plays a central bank. Fed with massive incentives that the government keeps the economy in operation since the beginning of the economic crisis, record increases in commodity prices. Quantitative release in 2010 caused a weakening dollar and lower interest rates. These Steps lead investors to invest in assets such as commodities. Monitoring the dollar cost is an important aspect of support for trade commodity market as commodities and the dollar generally move in the opposite direction. The most frequently used tools to track the dollar's value is called the dollar index. When the dollar against major currencies strengthened, commodity markets tend to fall and the reverse is also true when value of the dollar falls, commodity markets tend to rise. As can be seen on the graph, the value Dollar comparing CRB index of commodity. This situation is the strong signal for growth in prices commodities. Graph 1 shows the comparison the dollar index with CRB commodity index.
Graph 1 Comparison the dollar index with CRB commodity index Source: [9]
2. Precious Metals
One of the prerequisites for future developments in commodity markets, precious metals will FED policy and central banks. When comes the third wave of quantitative easing, whereof the chairman, Ben Bernanke is not exponent, can not wait for the rising of commodities in those days regarded as a safe haven.
Gold
One such store of value is gold. Investment demand for the metal is the huge. Current events from a macroeconomic point of view are ideal for gold. Riots in Arab countries fear the spread of inflation in the U. S., Europe and Asia, weak dollar, Fed monetary policy, a large and growing deficit in the fundamentals are good growth of gold, further supported by investor psychology. Correction may come, but which investor can use it as an opportunity to buy. Development of the gold price for 2011 will therefore be growth. Principal trend can be realized through gold ETFs. The recommendation is SPDR Gold Shares GLD and the iShares Gold Trust IAU. Graph 2 s hows the
8 International Scientific Conference “Whither Our Economies” November 16 17, 2011 comparison the dollar index with gold.
Graph 2 Comparison the dollar index with gold Source: [11]
Graph 3 shows the development of the gold price with moving averages.
Graph 3 Development of the gold price with moving averages Source: [12]
Graph long term development of the gold price moving averages (20 day, 50 day, 100 days) shows a clear trend. We see that gold since 2008 has experienced price increases, which is the accompanied by corrections. Now, again hits up, which is confirmed by moving averages. I believe that growth could continue in the coming months.
9 International Scientific Conference “Whither Our Economies” November 16 17, 2011
Silver
Another of precious metals, are considered a safe haven in times of uncertainty, is the silver. Unlike gold, silver has, more industrial uses, the demand for it is of nineteen minor part driven by investors and speculators. Never the less, as shown by the graph price of silver tends to move in correlation with the gold. Silver is a good investment when inflation. Graph 4 shows the development of the gold price and silver price.
Graph 4 Comparison of the gold and silver price development Source: [12, 13]
Graph 5 Growth in silver consumption in new application areas Source: [13]
Graph 5 shows the growth in silver consumption in new application areas. In the long term, consumption of silver could rise due to their unique properties, such as excellent electrical conductivity and antibacterial characteristics. There are so the new use of silver as solar energy, water purification, medicine, etc. This is due, these properties can cause that its consumption should in coming years increase substantially.
10 International Scientific Conference “Whither Our Economies” November 16 17, 2011
3. Agriculture
There are several important reports that market participants are watching. Perhaps the most importantis the report published by the U. S. Department of Agriculture (USDA United States Department of Agriculture), bringing reports of American and world production, cultivation farmers' intentions for the coming harvesting season, and an overview of consumption and stock agricultural crops. During the development of the USDA issued any further reports determining the approximate volume of harvest. 3.1 Corn
The United States is the world's largest producer and exporter of corn. Although exported only 30% of its domestic production, this 30 % represents 80 % of the total volume of world trade in maize. According to the U. S. Department of Agriculture, issued USDA report, the ratio of stocks in 2011 would fall to lowest level since record season 1995 1996. Closing stocks in the United States should move at 675 million bushels. The previous estimate of 745 million counted. USDA therefore expected to rise. Table 1 show the USD a corn report .
Table 1 USDA corn report Source: [14]
Chart of the development of maize prices moving average (20 day, 50 day, 100 days) indicate an upward trend. Technical analysis suggests that the upward trend could continue, however, may be accompanied by severe corrections. These corrections can be strong good opportunity to buy.
11 International Scientific Conference “Whither Our Economies” November 16 17, 2011
Graph 6 shows the development of the corn price.
Graph 6 Development of the corn price Source: [14]
3.2 Ethanol
Graph 7 shows the U S ethanol production.
Graph 7 US ethanol productions Source: [15]
Support the growth of corn prices and high oil prices on world markets. With rising oil prices and growing demand for biofuels all this is also exacerbated by the policies laid down volumes of biofuels, the United States is one of the countries, where most ethanol is produced from corn.
12 International Scientific Conference “Whither Our Economies” November 16 17, 2011
Conclusions
Prices of commodities in the last decade soared to their historical highs and there are still a lot of assumptions that this growth will continue. One of the main reasons why it is the influence of developing countries as demand for agricultural raw materials, metals, oil, energy, construction materials, as well as the increasing population in these countries, their reaching and changing eating and consumer habits, long term reduction of cultivated land, all brings with it increased demand for commodities. Another factor is the policy of central banks, whose actions led to an increase in asset prices. In addition, the central bank holds interest rates at such levels that returns are negative after inflation. In such conditions, investors are leaving traditional investment instruments and deposit their money into assets such as commodities. About the where and how to invest, the investor must decide for himself with regard to their knowledge and preferences. Investment ideas and practices are vastly different depending on which side of the investor and lean as a theory take as their own. Because conditions in the markets in recent times often change, trading commodities and commodity indices is need active investment management. But attention to proactively manage the increasingly seems like a necessity in any market, whether stock or commodity. If an investor wants to succeed, he must adapt to the market.
References 1. BARAN, D. Kapitálový trh a podnikové financie , Vydavatelstvo STU Bratislava 2003, 169 s. 2. ESNÍDAL, T.; PODHAJSKÝ, P. Obchodování na komoditních trzích . 2. rozš. vyd. Praha : Grada, 2007. 200 s. 3. ROGERS, J. Žhavé komodity . 1. vyd. Praha : Grada, 2008. 240 s. 4. Jílek, J. Akciové trhy a investování . 1. vyd. Praha : Grada, 2009. 656 s. 5. WILLIAMS, L. Kompletní průvodce obchodováním komodit . Praha : Centrum finančního vzdělávání, 2008. 277 s. 6. Financnik.cz. Více o čtení gafů. [online]. 2009. [cit. 2010 12 31]. Dostupné z WWW: