Deutsche Bank Bullish on Commodities

Frankfurt-based Deutsche Bank (DB) – Germany’s largest bank – has turned into one of the biggest players in commodities markets in recent years. Their latest financial results show record-beating performance, with DB reporting its best ever third quarter in commodities trading in the company’s history. Other major market players, however, suffered heavy losses from the sharpest downturn in commodity prices since the outbreak of the global financial crisis in 2008. DB expects commodity prices to remain strong for the rest of this year.

Many investors were surprised by Deutsche Bank’s gains in the commodities market. Commodities have been under strong sales pressure in recent months, after Europe’s sovereign debt crisis worsened and US dollar liquidity tightened in global financial markets. The strong rally in the greenback hurt performance in the precious metals sector. Fears of a slowdown in China have also hit commodity prices, since China accounts for up to 50% of global demand in base metals. Moreover, efforts to fight inflation by the Chinese monetary authorities could exert further deflationary pressures on the Chinese economy, thus curbing Chinese demand for raw materials.

DB’s strong results in the commodity sector helped the bank to offset mixed results in other important business sectors such as proprietary, equity and bond trading, since European banks have been adversely affected by the continent’s escalating sovereign debt crisis. While politicians remain in dispute over whether Greek bondholders should take a 60% “haircut”, Germany’s largest daily newspaper Bildzeitung has reported a run on the National Bank of Greece. Bank customers seem to have lost patience with the Greek government and the country’s banking system, and are increasingly unwilling to risk their savings in such a system.

While stock markets suffered price declines, the gold price benefited from growing fears in financial markets in yesterday’s trading session, with the yellow metal climbing back above $1,700. Silver also rose above resistance at $32.50 per ounce. In addition to Greek’s economic problems, the prospect of a collapse of Italy’s coalition government contributed to investors’ flight to precious metals. Such an event would exacerbate Italy’s as well as the eurozone’s debt crisis. Investor Dennis Gartman, who was saying a few days ago that gold prices are likely to fall even further, revised his forecast yesterday by advising investors to re-enter the gold market, which he thinks it likely to rally higher.

Author: Roman Baudzus