Bin Laden death has small impact on commodity prices

Commodity prices fell 2% in pre-market trading after news of Osama Bin Laden’s death. However, the S&P GSCI, a major commodities index – had recovered to a less than 0.5% loss at 9.30am EST Monday.

Meanwhile, his death caused an immediate lift in US equity futures, treasury yields, and the US dollar, although those gains were quickly unwound during the late Asian and New York sessions on Monday.

Michael McGlone, S&P senior director of commodity indexes, said the initial impact was on reducing some of the risk premium in risk related commodities like petroleum and precious metals and did little to impact the longer-term supply/demand situation in the global economy.

McGlone said the price of crude oil followed a similar pattern to when Saddam Hussein was captured. At the time of Hussein’s capture (Saturday 13 December 2003), the price of a barrel of crude oil closed at $33.04 on the Friday before and closed at $33.18 on the Monday after – essentially unchanged.

This past weekend crude oil closed at $113.93 a barrel on Friday and was currently hovering at $114 a barrel on Monday.

The early market S&P GSCI weakness was led lower by a decline in petroleum and silver prices as some of the risk premium in these markets had been alleviated.

Silver has been one of the best performing commodities in 2011, recently reaching new historic highs, McGlone said. At the end of April, the S&P GSCI Silver Index posted a year-to-date gain of 56.91%.  The latest news on the demise Osama Bin Laden appeared to spark some profit-taking in silver.

McGlone added that the US dollar was little impacted.  A strong driver of commodity prices in 2011 has been the sharp decline in the value of the dollar as evidenced by the 3.9% April decline in the US Dollar Index.

Clive Lennox, head of foreign exchange trading at Clear Currency, said: “It’s hard to judge what the impact of this development will be, but it’s likely to feed a sense that the mission in Afghanistan is closer to being accomplished, and that it could mean the quicker winding down of US troops there.

“If that was to pass, that would ease some of the financial burden on the military, and could help the US to spend less on its wars, helping to trim deficit spending.”

©2011 funds europe



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