Our forecasts for industrial commodity


prices also already reflect some of the potential fall-out from a Greek euro exit and a sharp slowdown in China. In particular, these have been key factors behind our relatively low 2013 forecasts for the price of copper ($5,000/tonne) and Brent crude ($85/bbl). What’s more, the risks might still lie on the downside. Our forecasts assume a relatively orderly break-up of the euro with the core holding together. But the outcome could be much messier, and markets might panic in any event, fearing a re-run of the Lehman crisis (or something even worse). It is worth remembering that the prices of industrial metals and oil fell much further in early 2009, with copper collapsing to $3,000 and spot Brent falling below $40. Admittedly, not everything has unfolded


as we had expected (or feared). In particular, gold has yet to benefit as much as we had anticipated from the eurozone crisis. The markets have regained confidence in the alternative safe haven of the US dollar, thanks to the relative strength of the US economy which, among other things, has reduced the chances of additional QE from


Even the US economy now appears to be faltering and


additional QE may be back on the Fed’s agenda soon


Figure 2: Oil & Copper Prices 150


Brent Crude (US$/bbl, LHS)


120


Copper (US$/Tonne, RHS)


10,000 8,000 90 6,000 60 4,000


Capital Economics Forecast


30 Source: Capital Economics 12 June 2012 2,000 12,000


the Fed. Weaker demand for gold from some emerging economies, notably India, may also have played a part. Indeed, gold has recently been trading like a risky asset, reflected in the unusually high positive correlation between changes in the prices of gold and of European equities. Nonetheless, gold hasn’t done that badly


this year either – certainly less badly than most other commodities, or traditionally riskier assets such as equities. Other usually reliable indicators, such as the surge in the cost of insuring against a sovereign default in Spain and Italy and the further falls in US real government bond yields, all suggest that the risks to the price of gold are still skewed to the upside. Even the US economy now appears to


be faltering and additional QE may be back on the Fed’s agenda soon. (It is no coincidence that the gold price surged recently following disappointingly weak US employment data.) What’s more, gold


2007 2008 2009 2010 2011 2012 2013 2014


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