Commodities Update 14

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After announcing to postpone an interest rate increase, gold prices got stronger. On Thursday, last week, prices of the precious metal have reached the highest level since the end of August. Still, Janet Yellen and other Federal Reserve members confirmed an interest rate increase in the coming months. As a reaction gold prices fell on Monday. William Dudley, Federal Reserve Bank of New York President, stated that, if the economy was staying on track, there were strong arguments for a rate increase.

Doubts about the condition of global economies have risen again, after Christine Lagarde, president of the IMF, has stated that growth forecasts for the global economy are not likely to be met. Another factor that pressures markets is China’s weakening demand in commodities. China is one of the world’s largest consumers of commodities. Earnings of Chinese industrial enterprises have decreased by 8.8% in comparison to last year.

As a reaction to the negative sentiment, Glencore PLC’s London-listed unit sank about 31% at the beginning of this week. This was the lowest level since its stock market launch in 2011. After the financial crisis some of the raw materials conglomerates got into debt to increase their production. If commodity prices won’t recover considerably, Glencore would have to spend nearly all of its returns to pay off its debts.