Higher taxes for Americans may dim the outlook for commodity prices if consumer spending slows, said Adrian Day, who manages about $170 million of assets as the president of Adrian Day Asset Management in Annapolis, Maryland.
As part of its budget agreement on Jan. 1, Congress agreed to let the payroll tax, used to pay for Social Security benefits, return to its 2010 level of 6.2% from 4.2%. That reduces the paycheck by about $83 a month for someone who earns $50,000. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment dropped to 71.3 in January, the lowest since December 2011, data showed Jan. 18.
“When people got their first paycheck this year, everybody was talking about it, and it’s really something they noticed,” Day said. “That is going to have a lot of impact. We may see people substituting buying bulk items instead of branded items and going to Wal-Mart instead of Whole Foods. It can all hurt the economy because it’s a significant amount of money out of people’s paychecks.”
Money managers added a net $861 million to commodity funds in the week ended Jan. 16, according to Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Outflows from precious-metals funds totaled $39 million, he said.
Positions on a crude-oil rally gained 6.7% to 179,249 contracts, the highest since September, CFTC data show. Futures have climbed for six consecutive weeks in New York, the longest rally since November 2011.
China, the largest oil-consuming country after the U.S., accounted for 11% of global demand in 2011, according to BP Plc. The nation, with a population of 1.34 billion, uses about 40% of the world’s copper, Barclays estimates.
Net-long positions in gold rose 8% to 99,458 contracts, the biggest gain since Nov. 27. Those for silver climbed 6.6% to 22,397, the first advance in seven weeks, and palladium wagers increased 9.2% to 16,627.