Gold

In the Singapore market, gold inched down in thin trade on December 27, with investors keeping a close watch on talks between the White House and Congress to prevent the US economy from plunging into recession next year. Gold fell $2.13 an ounce to $1657.36. It has come off a four-month low struck a week earlier, but remains below a record high of around $1920 hit in September 2011. For the year, bullion is up around six per cent on track for a 12th straight year of gains.

A deal to avert the so-called fiscal cliff of tax hikes and spending cuts that kick in at the start of next year and threaten to tip the world’s largest economy back into recession would offer trading direction to financial markets.

The United States faces $109 billion in across-the-board spending cuts starting in January unless a deal is reached to either replaced or delay them. Democrats want to switch the spending cuts to tax increases for the most part.

While gold is typically a safe-haven asset that gets a boost from economic uncertainties, it has increasingly been behaving like a risk asset and could also gain if a US resolution comes through. But most gold investors are waiting for the outcome of the US fiscal talks after the House of Representatives failed to pass its own budget measures a fortnight back.

Despite the recent losses, gold remains set for a 12th straight year of gains on ultra-loose monetary policy by leading central banks, concerns over the financial stability of the eurozone, and diversification into bullion by central banks. Gold appeals to investors as a hedge against inflation.

Bullion hit an all-time high around $1,920 in September 2011 when a worsening debt crisis in Europe sparked a buying rush. Hedge funds and money managers slashed their net long gold positions in the week to December 18 to their lowest level since the end of August, according to the Commodity Futures Trading Commission’s Commitments of Traders report.

Gold prices may hit $2,000 an ounce in 2013 as costs and barriers to production restrict supply, while demand from central banks and Chinese consumers keeps climbing, the world’s biggest gold producer predicts.

Barrick Gold Corporation Chief said finding new mines, negotiating permits and dealing with communities and governments is proving tough, while building costs for new mining capacity have sky-rocketed. At the same, time economic uncertainties and new investment tools in Asia have driven more investors into the precious metal, boding well for prices, he said.

“If demand continues to rise, which we think it will through China buying more gold, more investment demand for gold, (and) central banks continuing buying more gold rather than selling as they used to, I feel quite comfortable predicting that gold prices will be at $2,000 within the next year, perhaps higher,” he said.

The high prices, and expectations of more rises should encourage producers to expand but Barrick is not alone in facing challenges with new projects. Earlier this month it raised its cost estimate for its vast Pascua Lama mine on the Chile-Argentina border to $8 billion-$8.5 billion from $7.5 billion-$8 billion, and pushed back the date when the project will begin producing.

Oil

On December 26, oil advanced to a two month high in New York as US lawmakers prepared to resume budget talks and the United Arab Emirates said it arrested members of a terror cell that was planning attacks on crude-exporting nations.

Futures were little changed in New York after rising the most in five weeks on December 26. The US Treasury Secretary said he will take “extraordinary measures” to postpone a debt default, while President Barack Obama and Congress retuned to Washington for talks aimed at averting more than $600 billion in tax increases and spending cuts that start January 1. The UAE coordinated with Saudi Arabian officials to arrest members of a terror group.

Crude oil for February delivery climbed $2.37 to $90.98 a barrel on the New York Mercantile Exchange, the highest settlement since October 18. Brent oil for February settlement rose $2.27 or 2.1 per cent to $111.07 a barrel on the London based ICE Futures Europe.

A failure to reach an agreement on the budget plan might push the US, the world’s biggest crude consumer, into recession for the first half of 2013. The government will hit its statutory debt ceiling on December 31. To avert a default, the Treasury will create about $200 billion in headroom under the debt limit, which would normally last about two months.

Brent crude is poised to trade above $100 a barrel for a third consecutive year in 2013 as tension in the Middle East threatens to disrupt supply and global demand is buoyed by Chinese imports.Oil will average $110 next year, according to the median of 30 forecasts compiled by Bloomberg, compared with about $111.70 so far in 2012, on course for the highest-ever annual price. Brent is more likely to overshoot the 2013 median than miss it as Iran spars with the west over its nuclear programme and the conflict in Syria deepens, Morgan Stanley and UBS AG said.

Rising prices may pose a barrier to a recovery in the global economy amid Europe’s sovereign debt crisis, US budget disputes and signs of slowing growth in Asia. Record revenue for oil producers helped ensure supply stability this year, encouraging Saudi Arabia to pump at its highest rate in three decades, while financing shale projects in the US that fostered the nation’s biggest production increase in 50 years.

Iran’s oil exports have collapsed 50 per cent from year-ago levels because of tightened restrictions on sales imposed by the US and Europe this summer, the International Energy Agency said.

Daily exports will probably slide to about one million barrels early next year, compared with 2.5 million at the start of this year, the Paris-based adviser to consuming nations said in a December 12 monthly report.

Prices have also gained on signs that tensions in Syria are heightening discord between Iran, and Saudi Arabia. Refugees are fleeing Syria to neighboring states including Iraq, the fastest-growing oil producer this year among the 12 members of the Organisation of Petroleum Exporting Countries.

Brent advanced 1.5 per cent in the year through December 21, to $108.97 a barrel on the London-based ICE Futures Europe. The North Sea crude rallied 22 per cent in 2010 and 13 per cent last year, when it averaged $110.91 a barrel.

Global oil demand will expand by one per cent next year to 90.5 million barrels a day, versus growth of 0.9 per cent in 2012, the IEA predicted in its report. China will account for about 30 per cent of the expansion.

Opec decided on December 12 to leave its official production target unchanged. The group is expected to earn more than $1 trillion in export revenue this year, according to the US Energy Department.

Aluminum

Aluminum stocks are expected to rise. Stockpiles will expand for at least the next four quarters, reaching a record 8.67 million metric tons by the end of 2013, or enough to make about 62 million cars, Barclays estimates. Production will exceed demand by the most since 2009 as output expands from China to Saudi Arabia, the bank says. Futures will rise as much as 16 per cent to $2,400 a ton next year, the median of 29 analyst estimates compiled by Bloomberg.

Aluminum rose 2.7 per cent to $2,075 on the LME this year. Prices will average $2,225 in the final three months of 2013, or 10 per cent more than this quarter. Inventories tracked by the LME rose 5.3 per cent to 5.23 million tonnes this year, reaching a record December 21. Premiums paid for immediate supply in the US Midwest rose 45 per cent this year, while in Europe they increased about 80 per cent.

Global production will jump 7.4 per cent to 51.4 million tonnes next year, compared with a 3.4 per cent gain in 2012, Barclays estimates.

While consumption will advance 6.3 per cent, the most of any industrial metal tracked by the bank, the gap with supply will widen to 1.66 million tonnes.

Copper

In the London Market copper rose to a one-week high in thin trade on December 27, rebounding from falls in the previous session, as encouraging data from China reinforced signs of a recovery in the economy of the world’s top metals consumer. China accounts for about 40 per cent of the global copper consumption.

Benchmark copper on the London Metal Exchange closed at $7,915 a ton up more than one per cent from its $7,801.

Peru will nearly double its copper output in the next two years and will not give up on a $5 billion project by Newmont Mining that has stalled due to community opposition.

Peru, which has vast mineral resources, is the world’s second-largest producer of copper, and sixth of gold, but many Andean communities suffer from widespread poverty and worry that mining projects will generate pollution but little economic benefit.