FXStreet (Delhi) – Yann Quelenn, Market Analyst at Swissquote Bank, suggests that when commodities price lower, there is a transfer of wealth between exporters (producers) and importers of commodities.
Key Quotes
“The decline favours industries that need commodities as primary source for manufacturing products. Australia is on the exporters’ side. Indeed, an important part of the Australian’s revenues accounts for the revenues on the extraction of Gold, Silver, Platinium and other metals.”
“The consequences of low commodities prices are weighing on the Australian economy and are now reflected in the current business investment data which declined 9.2% q/q for the third quarter.”
“We believe this is partially because Australia is being hit by a major contraction of the commodities markets. The negative demand of the paper market (Gold for example) also drives down the price of the physical market as there is no decorrelation between those two and especially because of the sheer size of the paper market.”
“More specifically, there are two hundred times more paper ounces of Gold than physical ounces. At the same time the demand for physical commodities has exploded. And at some point, we cannot say that the paper market is a hedge for the physical one as the difference in size is so great. We believe that Australia’s issues with this contraction is not likely to lessen as the paper market continues to expand at a massive pace.”
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