Written by Sumit Roy  |

April 28, 2011

Morning Call: April 28, 2011

Details

The U.S. dollar plummets, sending gold to new record highs, while WTI crude oil hits a new 31-month high.

In the headlines today ...

• Yesterday the Fed gave commodity bulls just what they wanted, with the central bank signaling it was in no hurry to tighten monetary policy. The biggest impact was felt in currency markets, where the U.S. dollar plunged on the news, giving a boost to dollar-denominated commodities. Today we are seeing more of the same, as the trade-weighted dollar index slides for an eighth straight session to 73.05, a three-year low. Perhaps a large part of why the Fed maintained its dovish stance is the fact that U.S. growth still remains choppy. First-quarter GDP growth is expected to come in at a modest 1.7 percent annualized.
  Dollar Index Drops to Lowest Since 2008 on Fed Pledge; Stocks, Gold Climb
  

• Unsurprisingly, the plummeting U.S. greenback has had the greatest effect on precious metals prices, with gold able to notch another record high above $1,530/oz this morning, while silver surges back above $48/oz. "Everything is dollar-related and safe-haven buying," said one trader. "The Fed decision was not really a surprise, nothing has changed, but the tone of the statement from Bernanke left the impression that it is going to be a while before any rate hikes will be considered." Meanwhile, the gold/silver ratio fell to 31.9 from 33.1 yesterday.
  Precious - Gold strikes record as dollar wilts
  

• Crude oil is steady near the unchanged mark ahead of the U.S. open, but WTI prices did reach a fresh 31-month high at $113.70 earlier. With energy costs for consumers rising daily—the latest AAA survey pegs the national average for regular-grade gasoline at $3.89—demand considerations are keeping oil from spiraling even higher amid the plunge in the U.S. dollar. On the supply side, nothing much has changed as it relates to Libya's disrupted oil production, but the upheaval in Syria continues to simmer in the background. Said one analyst, "An escalation of violence in Syria holds potential for shaving off approximately 350,000 b/d of crude production. However, the majority of the crude exports are heavy and sour Souedie crude, much more easily replaceable than the high quality, light, sweet crude found in Libya."
  Oil Futures: Crude Flat; Market Digests DOE Data, FOMC Comments

• Corn leads gains in the agricultural complex amid concerns about heavy rains in the U.S. Midwest. The U.S. Grain Council's Jay O'Neil said that 85 percent of the corn crop needs to be sown by May 15, otherwise yields could fall. As of the end of last week, only 9 percent of the corn crop was planted, down from 46 percent last year.
  Corn Rises as U.S. Midwest May Face ‘Severe' Floods; Wheat, Soybeans Gain
  

• Cotton continues to get pummeled as high prices work their magic on both the supply and demand side. "We have sort of hit a brick wall where spinners have just not been willing to enter the market. That is presumably based on poor orders for their products and mounting inventories of yarn," said one analyst. But traders are keeping a close eye on drought conditions in Texas, which could end up reducing supplies.
  Cotton reels after mills scrap orders to offset record costs

• Base metals on the London Metal Exchange reversed yesterday's losses, but trading action remains lackluster due to a lack of catalysts. Lead and zinc lead the complex, while nickel lags. In a note this morning, a Macquarie Bank analyst said, "There is no significant surplus in lead or zinc markets today at current rates of production or consumption. This is not to ignore the high level of stocks built up from the surplus accumulated during the downturn, especially in zinc, but much of this metal is not readily available to the market."
  Base Metals: LME Metals Gain Ground in Asia On Weakening Dollar

What to Watch For:

8:30 a.m. EDT: U.S. Gross Domestic Product (1Q)

10:30 a.m. EDT: EIA Weekly Natural Gas Storage Report