Written by Sumit Roy  |

June 16, 2011

Oil Bounces, Gold Holds Firm Amid US And Europe Worries

Details

Financial market sentiment took a nose dive yesterday on more poor economic data and Greek debt concerns, but news flow is light this morning.

IN TODAY'S HEADLINES ...

• Commodities are fractionally higher this morning after declining the most in over a month yesterday. Weak data on U.S. industrial production and surprisingly strong consumer price index figures dampened sentiment that was already depressed. With no new fiscal or monetary stimulus forthcoming and the end of the Fed's second round of quantitative easing in sight, traders are extremely nervous about the prospects for the world's largest economy. The bulls argue that the U.S. is in a self-sustaining recovery, and that we are merely experiencing a slow patch related to fallout from Japan's triple disaster from earlier this year, while the bears believe that another recession is a distinct possibility.
  
  
• Both gold and silver were able to survive yesterday's broad selling pressure to settle flat to higher. Making the performance even more impressive was the fact that it took place on a day in which the U.S. dollar surged 1.7 percent on Greek sovereign debt woes. Indeed, those Greek woes were likely the reason gold was able to stay firm. More and more market participants believe that the troubled EU member will default despite the willingness of fellow EU members to grant a second bailout. This is because the country would have to continue cutting its budget aggressively to implement the required austerity measures, but given the recent violent strikes and protests in the country, it's far from a done deal that the government can accomplish this.
  Gold Falls as Stronger Dollar Erodes Demand for an Alternative Investment
  
  
• After plunging almost $4 on Wednesday, both WTI and Brent are ticking higher. The former remains near a four-month low, while the latter merely gave back the gains of the last several sessions. While oil fundamentals remain strong at the moment, traders reacted to the possibility of a deeper-than-expected slowdown in U.S. growth and of course, the potential for spillover into the rest of the global economy. Then there is also the fear that a potential Greek default leads to a Lehman Brothers-like contagion in debt markets. For the rest of the week, expect oil to take its cues from the performance of U.S. stocks, as both assets react to the same factors.
  Oil Trades Near Four-Month Low on Concern Europe Debt Crisis Is Worsening
  
  
• Corn and wheat are decidedly lower ahead of the U.S. open, as broader economic woes reduce the appeal of the sector that had largely been insulated up until now. But supply concerns for both commodities may keep prices relatively strong until there is more clarity on production. "We believe the sharp fall in wheat prices is exaggerated and we expect prices to recover soon," said one analyst.
  US corn, wheat slide deeper on crop weather
  
  
• Copper fell on Thursday on the London Metal Exchange, but prices are still near the $9,100/mt level. Prices did not fall much yesterday, suggesting that much of the negative news flow has already been priced into the metal. "We can expect more rangebound volatility to follow key economic data events around the globe," said one analyst. "But I think daily price fluctuations will stay moderate—within $300 on the LME..."
  LME copper slips, US data, Greek debt weigh
  
  

What to Watch For:

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