Overnight the gold and crude oil prices jumped 3.6% and 3.5%, respectively, as data out of China and Europe weighed on markets.
Over the past two years, the price of gold – touted as a hedge against inflation – has fallen 28% as concerns over the global economy, including the adverse effects of central banks' loose monetary policy have subsided.
The crude oil price – known for its volatile price swings – has fallen over 30% since June, over concerns of significant oversupply, caused by a huge production boom from North America. Until today, a potential recovery wasn't in sight.
Despite Australia's rising energy prices and proximity to Asia, shares of our biggest and best resources companies such as Newcrest Mining Limited (ASX: NCM), Oil Search Limited (ASX: OSH) and Woodside Petroleum Limited (ASX: WPL) have fallen hard, down 13%, 21% and 20%, respectively, in the past three months alone.
Is it time to buy?
At today's prices, each of the above three stocks look cheap. However, despite the possibility of a rebound in commodity prices, the natural supply-demand equation is pointing to a lower price in the medium term.
Gold, for example, appears to be facing further selling pressure as global investor confidence rises and inflation remains low. Despite Newcrest boasting the lowest all-in-sustaining cost (AISC) of Australian gold miners and a huge amount of reserves, it could be best left on investors' watchlists, for now.
The investment case for Woodside and Oil Search is a little harder to predict because there are many variables investors need to consider. For example some commentators suggest OPEC will, despite last week's decision, be forced to cut production and reinvigorate the market because lower prices for longer will have a profoundly negative impact on the smaller members' economies. However some financial commentators also believe the oversupply environment is here to stay.
Therefore for risk averse investors, patiently waiting on the sidelines could be the most prudent way forward. Alternatively investors could consider buying stocks in resources companies which will be profitable in any pricing environment.
