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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Seismic Activity in Japanese Commodity Markets

There has been some unusual action on the Japanese commodities markets that demands a comment.

I mentioned earlier this week that over the last two weeks the Japanese have revved up several new structured investment products tracking commodities.

There are now some "seismic signals" registering in those markets, showing these new ETFs and trusts may be having an immediate impact.

On Tuesday, open interest in rubber futures on the Tokyo Commodity Exchange suddenly jumped 12% (touching off a flurry of prophylactic jokes from some of my coarser Asian colleagues).

Rubber

This is a large jump. In fact, I can't remember the last time I saw a daily move of this magnitude on a major commodities exchange.

Most interestingly, the majority of the buying came from trade and broker members of the TOCOM. These professional buyers usually account for a very small portion of TOCOM buying. The bulk of purchases almost always comes from non-commercial customers.

Trade and broker members are generally sophisticated buyers. The kind who would be dealing in the structured products TOCOM recently introduced. The big jump in rubber could be a direct result of these new investment options.

And rubber wasn't a one-off. Yesterday, open interest in TOCOM gold futures jumped 8%. Again, a large portion of the buying came from trade members.

Gold

One surprise is that trading in TOCOM platinum and palladium futures has been relatively subdued, despite the launch of new PGM-backed ETFs last week.

But there's been action in other parts of the world. NYMEX palladium futures had a wild week. Last Friday, NYMEX open interest in palladium jumped 2.7%. On Monday, it fell back 2.6%. Only to jump 4.4% on Tuesday and then fall 5.5% yesterday. On near-record volumes.

Palladium

This is extreme volatility. And it may have to do with speculation that the new Japanese ETFs will increase global demand for platinum group metals.

Something is certainly afoot. Keep an eye on this one.
Here's to rubber, gold and palladium,

By. Dave Forest of Notela Resources


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  • Anonymous on February 27 2010 said:
    Very interesting piece. This is the way that I would like for my students to present information. But as for understanding the Japanese market,well... When I began teaching finance, I thought that I had all the answers about that country: I was one of the people who thought that the Japanese economy was going to show the world miracles (and I might have put that in the editions of my finance book that I taught from). Where certain things are concerned (e.g. nuclear), I still feel that way, but unfortunately it's impossible to be sure.
  • Anonymous on August 29 2010 said:
    First of all, we need some important background information about interest rates. Typically, short-term interest rates are lower than long-term interest rates (think of the rate on a 15-year mortgage vs a 30-year mortgage). This is because there is less risk to the lender in a short period of time than in a long period of time. A lot can happen to the borrower during those extra 15 years. That's twice as much time for the borrower to lose a job, become ill or have any number of other possible life events that make it difficult or even impossible to pay back the loan. Therefore, for two loans that are similar in every other way, the one that has the longer payback period will have the higher interest rate.Structured Investments

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