By Taylor Wilman
Refugees all over Europe, Russian bombs in Syria and Turkey for thanksgiving. With all the geopolitical issues going on in the middle-east, one but wonders how this all affects commodity prices.
Fortunately, volatility is a friend of the trader as no one can really make any money in a market that is flat (apart from option premium sellers, but that is another story). As the Russians have intervened in Syria the world’s attention shifted once again towards Oil, and with the downed warplane by Turkey investors and traders alike became worried that the supply of oil from the region will take a hit. This is why WTI oil jumped to $43 on the 25th of November as worries over an escalating conflict between Turkey and Russia emerged.
The middle-eastern region is a key supplier of Natural Gas and Oil, and in addition to the political factors the major hedge funds with exposure to Oil have reported new highs in their short positions. This has happened before, and the many coverings of short positions have pushed the price of oil considerably higher in the past. This is to be expected once more.
With access to a commodities trading account it is easy to take advantage of such news, opportunities or ideas. Fortunately for the trader events like this are not limited to Oil.
Even though the many uncertainties, the approaching holiday season is much more beneficial to the equity market than it is to Gold, thus it continues to slip and slide lower, currently at $1070 for an ounce from the highs of over $1180 at the end of October. Coincidentally the $1180 level aligned with the top of the downtrend channel, so with a bit of technical analysis knowledge it was possible to enter into a winning trade. For the more conservative ones there was still the $1120 level, as when the price broke through that a good trading opportunity revealed itself. An interesting piece of information is the sustainable level of gold price for the gold miners, which is at $950 for existing mines. If the price falls lower than that, then these miners will not be able to turn a profit, leading to interesting events. This might mean a very strong support at the $950 – $1000 level.
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If a trader likes Coffee, then he could also take a look at the tradeable coffee commodity, oftentimes found in CFD form either as futures or a continuous, so called SPOT contract. The price for Arabica coffee has fallen considerably on the news that the expected higher amount of rain in Brazil will stop the shortage of coffee beans. The country is currently the leader in export of these types of beans, and any unexpected change in weather will have a major effect on the commodities price. Obviously the shortage won’t be solved overnight, but it is a good start none the less.
There are many opportunities like this all over the world from which a person with a commodities trading account can benefit. Simple technical analysis will do a great job with defining trends and finding entry points, but the price of a commodity is very susceptible to changes in fundamental circumstances. Trading these instruments therefore means that the trader ought to be careful when plotting his next move.
Article by Taylor Wilman