Written by Sumit Roy  |

May 14, 2012

Morning Call: Gold Plunges, Wipes Out Year’s Gains After China Cut; Oil At New Low As Eurozone Rates Spike

Details

Commodities continue to plunge amid global macroeconomic worries.

China cut its bank reserve requirements ratio by 50 basis points overnight to 20 percent, the third such cut in the current monetary loosening cycle, which began last November. Last week, data from China showed that industrial production in the country grew at the slowest pace since 2009.

However, markets were unimpressed by the latest move by China, with some traders hoping for stronger action in the form of interest rate cuts.

Indeed, prices for most commodities are down sharply once again, in a continuation of the sell-off that began weeks ago. In addition to China slowdown concerns, familiar worries related to the U.S. economy and eurozone sovereign debt are pressuring prices.

Fears are growing that Greece will be forced to exit the eurozone, as a split between pro-bailout and anti-bailout factions in parliament leaves the government paralyzed.

Yields on Spanish 10-year bond yields, which are currently seen as the best gauge of sovereign debt fears, rose by 29 basis points to 6.29 percent — the highest level since November 2011.

• Precious metals have wiped out their entire gains for the year, as the sector drops to the lowest levels since December. Gold was last trading down by $17.51, or 1.11 percent, to $1561.90/oz, while silver shed $0.52, or 1.81 percent, to $28.39. Platinum lost $15.25, or 1.04 percent, to $1449.25 and palladium shed $7, or 1.16 percent, to $596.
  
  "Gold is under severe pressure. The U.S. dollar is being seen as a safe haven at the moment and as long as the dollar is appreciating against the euro this is clearly weighing on the gold price," said Daniel Briesemann, analyst at Commerzbank.
  
  "I wouldn't be surprised if we test the December low of around $1,520 an ounce and if we don't stop here we could go below $1,500."
  Gold drops to 4-1/2 month low on eurozone worries
  
  
• Crude oil prices hit multi-month lows today after Saudi Arabian oil minister al-Naimi called for prices to fall further. "We want a lower price than where it is now," he said. "We need to get the price to a level of around $100 [for Brent]."
  
  Brent was last trading down by $1.48, or 1.32 percent, to $110.78 after briefly slipping to the lowest level since Jan. 25, while WTI shed $1.80, or 1.87 percent, to $94.33 after slipping to the lowest level since Dec. 19.
  Oil Falls to 2012 Low on Greek Debt, Saudi Call for Drop
  
  
• Natural gas prices continue to hover near two-month highs, as the fuel shrugs off macroeconomic events to focus on its own fundamentals. Prices were last trading down fractionally to $2.50, a loss of $0.01, or 0.24 percent, to $2.50/mmbtu.
  Finally, an End to Wishful Thinking for Natural Gas
  
  
• The grain complex is mixed today, as corn rebounds on bargain buying, while soybeans continues to sink on profit-taking. However, some analysts are expecting much lower prices for corn in the future amid a record harvest.
  
  "New crop corn will be about $4 probably after mid-July," said grains analyst Robert Bresnahan of Trilateral Inc. "A large portion of the crop was planted early and they received timely rains. I see a downtrend (in prices)."
  
  Corn was last trading to the upside by $0.17, or 2.71 percent, to $6.25/bushel, while soybeans fell by $0.26, or 1.82 percent, to $13.79 and wheat added $0.08, or 1.27 percent, to $6.
  Record US harvest could herald $4 new-crop corn
  
  
• Copper prices briefly fell to the lowest levels since January today, as the broad-based selling in commodities weighs. Prices for the industrial metal were last trading at $3.58/lb, a loss of $0.06, or 1.75 percent.
  
  "It's hard to disentangle [China] from worries about Europe [that] have been mounting in recent days," said BNP Paribas analyst Stephen Briggs.
  
  "There are still some bullish factors. It looks like another year of deficit for copper, everyone seems to agree on that but everything is being overridden by bigger macro developments on the negative side."
  Copper hits 4-month low on China, eurozone worries
  
  

What to Watch For:

No notable releases