Written by Drew Voros  |

May 16, 2012

Market Wrap: Gold Slides More Despite Goldman, Soros Support; NatGas & Corn Surge

Details

Most commodities continue decline, but natural gas and grains outperform.

Commodities in general endured another tough day as investors continue to sell the space as it becomes more apparent Greece is headed for a default if not an outright exit from eurozone.

The euro fell to a four-month low, dragging gold down with it. New polls from Greece show socialists, who are opposed to austerity measures, winning the newly called election in June. In addition, a bank run by Greeks fearful of devaluation saw 700 million euros withdrawn Monday from banks in the country. The turmoil in the country is palpable.

Despite the growing concern, yields on 10-year Spanish bonds, a measure of volatility in the eurozone, fell 5 basis points to 6.29 percent and the U.S. Dollar Index only inched up 0.17 percent to 81.36.

“Until the Greek situation is resolved in some way, the markets are going to price the ongoing uncertainties and the risk of further deterioration in the growth outlook,” said Pete Richardson, chief metals economist at Morgan Stanley.
Commodities Drop Near Five-Month Low on Greek Euro Exit Concern

• The precious metals complex was down across the board. However, gold did receive some public support from Goldman Sachs and billionaire investor George Soros.
  
  Goldman Sachs wrote in a May 9 report that the Federal Reserve is likely to start a third round of stimulus in June and gold will hit $1920/oz. in 12 months. The metal rose about 70 percent as the Fed bought $2.3 trillion of debt in two rounds of so-called quantitative easing ending in June 2011. In addition, Soros raised his stake in the SPDR Gold Trust, the biggest exchange-traded product backed by bullion, according to a filing Tuesday reflecting first-quarter holdings.
  
  Gold was last trading to the downside by $3.74, or 0.24 percent, to $1540.47/oz, while silver fell by $0.59, or 2.11 percent, to $27.14. Platinum dropped by $2.50, or 0.17 percent, to $1430.50 and palladium gained $3.75, or 0.63 percent, to $592.

• Oil prices fell to a six-month low today on rising inventories based on fears about a global slowdown, but Brent continues to hold above the key level of $110, which is seen as strong support from a technical perspective. Prices for the benchmark were last trading higher by $0.73, or 0.65 percent, to $111.51, while WTI shed $1.42, or 1.51 percent, to $92.56.
  
  
• Natural gas continues to outperform all commodities and did so again today by rising $0.10, or 4 percent, to $2.60/mmbtu. The energy product is moving higher a day before the weekly inventory report, which has shown a significant decline in production is driving the price higher. 
  
  
• The grain complex was up amid reports that China again made a large corn purchase, as corn prices have been falling. Bloomberg News reported that U.S. exporters sold 900,000 metric tons of corn to China. The grain had been down 7.5 percent for the year after the USDA said farmers would harvest a record crop this year.
  
  Corn, which had fallen below a key $6/bushel level, jumped $0.14, or 2.39 percent, to $6.11. Wheat rode the tail winds of the corn deal, rising $0.22, or 3.66 percent, to $6.30 and soybeans added $0.06, or 0.41 percent, to $14.19 after falling below $14 earlier in the morning, before the Chinese corn purchase was announced. 
  
  “The China corn-sale announcement is positive because it shows they are willing to buy on weakness,” Jim Riley, a grain broker for the Linn Group in Chicago, said today in a telephone interview. “With a big crop on the horizon, we will need to see more buying from China.”
  Corn Climbs for Third Day on China Demand Outlook
  

• Copper prices also are being hit by the Greece crisis as well as fears of a slowdown in China. The industrial metal was last trading down by $0.054, or 1.53 percent, to $3.46/lb — the lowest level since January.