'Brexit' zaps oil, farm product prices but helps gold
Whether it was cattle or oil, commodity investors were spooked Friday by the United Kingdom's vote to exit the European Union, causing prices to fall for a broad range of commodities. But as is often the case in times of uncertainty, gold prices experienced an uptick.
When it came to oil and agricultural commodities overall, the ripple effects on prices weren't as significant as the impact on stocks.
"The more industrial commodities have actually outperformed other 'riskier' asset classes," Capital Economics analysts Caroline Bain and Julian Jessop said in a research note.
Investors fled to gold as a perceived safe haven amid market turmoil. Gold gained 4.5% to $1,319 per ounce, reflecting investors' continued believe in the commodity's resiliency in the face of stock-market volatility.
But the strengthening U.S. dollar could cap the upside for gold, said Rob Haworth, senior investment strategist for U.S. Bank Wealth Management.
"You certainly have more room for gold," Haworth said in an interview. But "I wouldn't say I'm turning bullish."
The price of West Texas Intermediate crude, the U.S. benchmark, declined 4.9% to settle $47.64.
Any fears that the U.K. decision could undermine global economic growth, fanning the flames of contagion, will hurt oil prices on the assumption that a downturn hurts demand, S&P Global Market Intelligence analyst Stewart Glickman said in a research note.
"Global GDP growth is generally seen as a key determinant of crude oil demand, so to the extent that GDP growth dissipates, crude oil prices could again suffer," Glickman said.
Meanwhile, the S&P GSCI Agriculture Index fell 1.5% as corn, wheat, cocoa and cattle prices declined.B
Broadly speaking, however, commodities have remained "surprisingly resilient" compared to the stock market, said Shawn Reynolds, portfolio manager of VanEck Global Hard Assets Fund and natural resources investor, in an interview.
By mid-day, London's FTSE 100 fell 12.5% German DAX skidded 6.8%, the broad Stoxx Europe 600 index fell 7% and France's CAC 40 was off 8.0%. The Dow Jones industrial average was down 2.8%, the S&P 500 declined 3% and the Nasdaq fell 3.7%.
One possible explanation for oil holding up better than the stock market is that although U.K. economic growth rates could slip in the wake of the Brexit vote, demand from economic behemoths such as China remain a much more significant influence for commodity prices.
For oil, the impact of the "Brexit" vote was clearly sharp — but other global factors will remain more influential in the commodity's trajectory, analysts said.
Namely, the ebb and flow of supply and demand remains the most significant influence — and although oil has recovered from early-2016 lows below $30 per barrel, few analysts expect it to go much higher than $50 in the coming weeks.
"It's certainly down on the day but we’re back to where we were maybe last week," Reynolds said. "And certainly back to where we were in May. If you think about where we’ve come from in January, February, March, we’re still well above where we were."
Follow Paste BN reporter Nathan Bomey on Twitter @NathanBomey.