Is There A Correlation Between Energy And Metal Prices?

Is there a correlation between the price of oil and that of metals?

As oil prices rose this week to new 2015 levels the price of gold and silver continued to plunge. Gold fell to trade at 1207.30 in the Asian session this morning as China leaves for the long Lunar holiday.  Gold and silver fell to six-week lows, while platinum fell to the lowest since 2009, on signs that Greek banks will continue to get emergency funding despite a breakdown in debt talks between their government and euro zone partners. Silver fell to trade at 16.46 well below its average trading range in February near the $17.50 level. Silver tumbled 5.2 percent to a six-week low. Platinum tumbled well below the $1200 price level and continues in the red this morning at 1173.80.

An official in the know with the matter told Reuters the European Central Bank was unlikely to pull the plug on funding for Greek banks this week, raising hopes that policymakers will eventually break the impasse to strike a deal. The ECB is set to decide on Wednesday whether to maintain emergency lending to Greek banks.

Investors typically seek safety in bullion during economic uncertainties and when riskier assets such as equities take a hit. But hopes that a compromise would eventually be reached between Greece and international lenders deterred investors from increasing their exposure to gold. The broader market sentiment also was not in panic mode and the euro recovered from initial losses on signs Greek banks will continue to get emergency funding despite a breakdown in debt talks between Athens and euro zone finance ministers.

Base metals are also in the red this morning. Although prices have stabilized since January, calling for a bottom right now would just be a guess. It would be no more reliable than flipping a coin, especially since it’s in a period of extreme volatility where the psychology of market participants is what determines the price. Oil crashed in 2014 before industrial metals fell significantly. Now, many industrial metals are near key support levels. At the same time that oil is trying to make a comeback. Analysts believe that oil failing to make a comeback could make industrial metals keep on falling for the rest of the year. London copper slipped yesterday under some pressure from a slightly stronger dollar, with traders winding down positions on the last full trading day before the Lunar New Year. Copper dipped 18 points to trade at 2.569 after climbing over the 2.60 level last week. Palladium is down $4.10 at 778.40. The only thing that is clear in the metals markets is that oil and the dollar will play a key role in the performance of industrial metal prices in 2015.