x Abu Dhabi, UAESunday 21 January 2018

Opportunities arise as commodities suffer

Commodities may have experienced a sharp fall last week, but market experts have drawn attention to opportunities emerging from betting on fluctuating price moves

As investors digest the weekend rout that swept across the commodities sector, not everyone is mourning.

The volatility of commodity prices - even if the trend is down - can still provide rewards for traders.

A two-day sell-off at the end of last week sent commodities to fresh lows. Brent crude, the global benchmark for oil, capped its biggest weekly decline since 2008 to close 1.5 per cent down at US$109.13 per barrel in London on Friday.

The price of most raw materials - from precious metals, including silver and gold, to so-called soft commodities such as cocoa and corn - fell on concerns a two-year price rally may be losing steam.

But market experts said opportunities could arise in securities and futures contracts if volatility continued.

Sajith Kumar, the chief executive of JRG International, a derivatives brokerage house based in Dubai, said speculative opportunities had arisen as global economic news triggered sharp price movements across currencies, oil and metals.

"Investors are keen to book profits on a daily basis [based on price movements], through speculation that a price of a contract will go up or down," said Mr Kumar.

Yesterday, the Dubai Gold& Commodities Exchange said trading volumes last month jumped 111 per cent from a year earlier to reach 227,421 contracts worth $11.4 billion. So far this year, volumes on the exchange have climbed 51 per cent to 910,913 contracts, signalling increased trading on the back of fluctuating prices.

Jeffrey Rhodes, the global head of precious metals at INTL FCStone, said such trades could be a lucrative business. However, he cautioned that investing in silver price volatility in particular was a "very dangerous" investment for the ordinary investor. He believes gold is a "fundamental store of value".

Analysts at Bank of America Merrill Lynch said investments linked to commodity indices were likely to extend a rally in the long term despite last week's slump. "There was not much more institutional investors could have asked for from an asset class," their report stated.