Commodities Watch: The Case for Gold; Ag Prices Turn Down (GLD, GDX, GDXJ, SLV, SIL)

Today’s look at the commodities markets examines a new report from the World Gold Council and reports on another downturn on agricultural products.

The World Gold Council has published a new report entitled “Gold: a commodity like no other.” The report argues for allocating gold its own role in an investment portfolio, rather than just part of a portfolio allocation for commodities. Perhaps not surprisingly the report “demonstrates that if part of a commodity allocation is directly assigned to gold, portfolio performance is not only improved, but the investor will also reduce the potential for loss in a portfolio, by decreasing so-called Value-at-Risk (VaR).”

Whatever one thinks of the conclusion, there are some interesting facts in the report. For example, gold is more evenly distributed around the world than either silver, copper, or platinum.  In terms of demand, 49% of gold demand goes for jewelery, 41% for investment, and 10% for industrial use. Silver demand is split 50% for industrial use and 25% each for jewelery and investment. The higher dependence on industrial use of silver, copper, and platinum usually results in those metals being more susceptible to the business cycle.

Looking at supply, mining produces 60% of the world’s gold, 79% of world silver, 85% of copper, and 88% of platinum. The rest is mostly recycled.

Here’s another nugget from the report: “As of December 2010, the aggregate open interest in gold across commodity exchanges was US$94.1 [billion], which corresponds to 4% of the US$2.4 [trillion] of gold in private and government holdings. In comparison, the open interest in silver by the end of 2010 was over 50% of the estimated bullion stock holdings.” The liquidity in the gold market exceeds that in every other commodity except crude oil.

At about noon today, gold prices stood at about $1,474/ounce and silver prices were above $41.50/ounce. The SPDR Gold Trust ETF (NYSE: GLD) was up about 1.2%, at $143.59, at the top of its 52-week range of $110.54-$143.84. The iShares Silver Trust (NYSE: SLV) was up nearly 3%, at $40.72, after setting a new 52-week high of $40.74 earlier in the day.

Mining funds are also up today, with the Market Vectors Gold Miners ETF(NYSE: GDX) up about 1.2% to $61.57, in a 52-week range of $45.70-$64.62, and the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) up nearly 2.5%, to $40.83, in a 52-week range of $24.25-$44.86. The Global X Silver Miners ETF (NYSE: SIL) is up about 0.4%, to $29.01, in a 52-week range of $12.90-$31.34.

Among the ag commodities, corn, cotton, wheat, soybeans, and lumber are all trading down fractionally today, following yesterday’s upturn. Corn for May delivery fell $0.03 to $7.525 at the Chicago Board of Trade.

Live cattle prices are up slightly and feeder cattle prices are also up. The falling corn price typically indicates that ranchers and feed lots will buy the cheaper corn that’s now available.

Cocoa prices continue to rise as traders worry about the coming harvest in Ivory Coast. The political turmoil has weakened the country’s banking system and even though cocoa exports to Europe are set to re-start this week, no one is optimistic that everything will work out.

Paul Ausick