As the people of Greece vote ‘Oxi’ (No) in Sunday’s referendum what are the short and longer term implications for commodity prices?
For much of the past week financial markets assumed that voters would return a ‘Nai’ (Yes) verdict. Betting markets put the probability of a yes verdict at around 60%-65%. At the time of writing the no vote won by 61% to 39%. With investors perhaps too complacent ahead of the referendum markets are likely to be volatile over the next couple days as more details of a way forward comes to light.
According to research from ING the key commodity markets likely to be affected are Gold, Crude and the base metals like Aluminium and copper.
The key impact on commodity prices in general is likely to be through movements in currency markets. As markets opened up in Asia the Euro has dropped by about 1% versus the dollar making commodities more expensive.
Gold traditionally acts as a safe haven in times of uncertainty. Over the past week however it has barely reacted to the news. The prospect of a renewed bout of uncertainty and the potential negative impact on economic growth may now mean the Federal Reserve will delay tightening monetary policy reducing the attraction of holding gold.
Oil prices in particular have a close inverse correlation with the dollar and so further strengthening could see crude weaken further in the short term.
But perhaps the commodities most vulnerable to a sharp move down are base metals. Although Greece is unimportant by itself, uncertainty over Greece’s path towards exiting the Euro and the risk of contagion is likely to see slower growth in European consumer spending, reducing industrial demand for aluminium, copper etc.