Written by Sumit Roy  |

August 11, 2011

Market Wrap: Gold Tumbles From Record ($1814), Oil Rises As Sentiment Improves And Dollar Sinks

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Markets continue to recover from the recent bloodbath, but gold traders take profits.

Most commodities continued to recover today thanks to bargain buying and a strong piece of U.S. economic data. The government reported that initial jobless claims fell to 395K last week, the lowest level since April. Combined with last week's employment report, the figure suggests that the labor market in the world's largest economy may be a bit stronger than expected.

The S&P 500 surged more than 4 percent in the session, erasing much of Wednesday's decline. Trading action has been extremely volatile and may remain so until there is more clarity on the economy. Perhaps most encouraging was the fact that Monday's lows have held on a closing basis. Wednesday's sharp plunge was seen as a retest of those levels by many traders, and today's bounce could be interpreted as the start of a bottoming process.

In Europe, yields on Italian and Spanish 10-year sovereign bonds remained well-behaved at 5.05 percent and 5.01 percent, respectively. That puts their spreads over benchmark German bonds at 2.73 percent and 2.69 percent, well below the record levels near 4 percent set last week.

As for gold, it tumbled as traders locked in profits amid today's improvement in sentiment. Overnight, the yellow metal hit a fresh record of $1814.95/oz, but was last trading 3.1 percent lower at $1737.47. Silver also fell by 1.5 percent to $38.70/oz.

Meanwhile, crude oil rallied. WTI added 2.5 percent to $84.94/bbl, while Brent gained 1 percent to $107.79. The Chinese yuan advanced to a 17-year high against the U.S. dollar (6.39 yuan per dollar), which is seen as bullish for commodities. A stronger currency makes dollar-denominated commodities cheaper for China, all else equal.

Copper advanced 3.1 percent to $4/lb on COMEX, rebounding from Wednesday's losses. "A key feature of the Chinese market in recent days has been the appreciation of the yuan, whose strength has noticeably accelerated," said analysts at Standard Bank.

Grains rose across the board thanks to bullish data from the USDA. The department lowered its stocks, production, and yield forecasts for corn and soybeans.

Corn was last trading 3.61 percent higher at $7.03/bushel after rising by the exchange limit earlier. Soybeans gained 2.86 percent to $13.38 and wheat rose by 2.23 percent to $7.00.