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Hansen: Commodities attempt a comeback after China chaos

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Following China's decision to devalue its currency (CNY) this week, the initial reaction in commodities was to sell lower. But Saxo's Ole Hansen explains why China still needs raw materials such as crude and iron ore.

Gold got a lift this week from China as investors looked for an alternative investment to stocks. But Hansen says it didn't quite reach 1132, a key level, so has lacked support.

This week, WTI reached its lowest level in six years, while Brent is up, widening the spread between the two. But Ole says it's not only China that's to blame for crude's problems. Oversupply is still a major issue with OPEC's production running at its highest level in three years. The end of the driving season is in near in the US which will reduce demand. Inventories in the States are still around 100 million barrels above the five-year average.

One commodity that got a break this week was coffee with Arabica up 8.4%.That's despite continued weakness of the Brazilian Real. Hansen says the soft is benefitting from the reduction in the potential production coming out of the country this year.