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Major Markets and Commodities Slump as Gold Rises

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Slumping commodity index

The BCOM (Bloomberg Commodity Index), which contains commodities ranging from raw materials, oil, and metals, lost close to 2% and had the lowest close since August 1999. This return measure of commodities has hit the lowest mark since 1999. The slumping index is mainly due to the staggering crude oil prices. The dip majorly pertains to the falling Chinese stock market and the weak industrial demands from China. Crude oil has settled to the lowest mark in February 2009.

The below chart shows the prices for the S&P Goldman Sachs Commodity Index, which tracks the global commodity performance. The index has a 78% weight in the energy sector, including crude oil.

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The safe-haven demand for gold has increased recently. Gold futures for December delivery on COMEX have gained ~3%, and silver gained 0.78% on a 30-day trailing basis as of September 3. Platinum has been a winner among the precious metals, gaining a whopping 5.08%. Palladium ended negative 4.11% on a 30-day trailing basis.

Gold-backed ETFs and equities

Though gold surged due to turmoil, gold-backed ETFs like the Direxion Daily Gold Miners ETF (NUGT) and the Direxion Daily Jr. Bull Gold 3X (JNUG) lost 8.7% and 7.1%, respectively, on a 30-day trailing basis.

Mining equities like Yamana Gold (AUY), Coeur Mining (CDE), and Kinross Gold (KGC) have lost 6.04%, 11.08%, and 1.78%, respectively, on a 30-day trailing basis.

The staggering US economy

The US has added close to 11.5 million jobs during its five years of labor force expansion. The number is almost 0.75 lower than the peak during the pre-recession periods. The overall employment markets have been flattening. 215,000 jobs were added in July. Also, April and May saw 54,000 fewer job increases than expected. The employment cost saw a rise of 0.2% from the expected 0.6%. The labor participation rates are also down to 62.6%.

While there’s speculation that market turmoil may likely cause the Federal Reserve to delay an increase in interest rates, the dollar has surged close to 6.6% over the past year. That makes commodities more expensive for other currencies.

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