Written by Sumit Roy  |

May 23, 2012

Morning Call: Gold Could Get Worse Before It Gets Better, Says UBS; Oil & Copper Sink As Dollar Hits 20-Month High

Details

Commodities tumble across the board today.

A spike in the U.S. dollar to 20-month highs is pressuring commodities and stocks today. The greenback was last trading at 81.64, a gain of 0.18 percent after reaching 81.91 earlier — the best level since September 2010.

Meanwhile, Spanish 10-year bond yields — currently seen as the best gauge of eurozone sovereign debt fears — rose by 2 basis points to 6.09 percent.

• Gold is back in correction mode after the recent recovery rally petered out near $1600/oz. However, the yellow metal still remains above the key $1533 support level. Gold was last trading lower by $7.55, or 0.48 percent, to $1560.95, while silver shed $0.40, or 1.42 percent, to $27.78.
  
  Platinum lost $14.50, or 1 percent, to $1430.50 and palladium fell by $5.25, or 0.86 percent, to $606.
  
  "As uncertainty mounts leading up to the June 17 Greek elections, we're more inclined to bet on a higher gold price but a Greek exit, while most likely fuelling considerable physical gold demand in Europe, could spark a sizeable deleveraging and dis-investment in financial markets," UBS said in a note.
  
  "The paper gold market would not be immune to this selling. That is gold's risk and it's feasible to think the metal could fall below last week's low of $1,527 before ultimately rebounding sharply."
  Gold slips in line with euro ahead of EU meeting
  
  
• Crude oil prices slipped back near the lowest levels of the year, as today's broad-based selling in financial markets weighs. Tuesday's news that Iran and the IAEA had reached an agreement for closer inspections of the country's nuclear facilities is not helping either.
  
  "The agreement by Iran to let the inspectors in is a small step in potentially reducing the supply risk," said Ric Spooner, chief market analyst at CMC Markets. "That feeds into the overall situation where demand is steady to somewhat soft against a background of more than adequate supplies."
  
  Brent was last trading down by $1.22, or 1.13 percent, to $107.19, while WTI sank $0.74, or 0.6 percent, to $91.11.
  Oil Trades Near Two-Day Low on Iran Deal, Rising Supplies
  
  
• Natural gas is lower today, as the fuel continues to have trouble breaking through resistance near $2.75/mmbtu. Gas was last trading to the downside by $0.05, or 1.66 percent, to $2.66.
  Natural gas prices' rise stirs optimism
  
  
• Soybeans and wheat continue to sell off today, while corn stabilizes after Tuesday's nearly 6 percent plunge. Soy was last trading lower by $0.16, or 1.12 percent, to $13.67/bushel, while wheat lost $0.14, or 2.01 percent, to $6.72 and corn added $0.02, or 0.29 percent, to $5.99.
  
  "I think wheat is being weakened by the stronger dollar, lower outside markets and better forecasts for rain in Russia and the U.S.," said Rabobank analyst Erin FitzPatrick. "We have had improved forecasts for rain in the U.S. wheat belts over the next week or so which is easing concerns about dryness there."
  
  "The overall selloff in wheat and soybeans is also to do with what is going on in the background macro environment," FitzPatrick said. "We are seeing less support from short covering following the large recent large short position held by managed money in the CBOT wheat market."
  Wheat, soy falls on strong dollar, rain forecasts
  
  
• Copper prices on Comex are down to a fresh four-month low amid ongoing macroeconomic worries. The industrial metal was last trading at $3.43/lb, a loss of $0.06, or 1.63 percent.
  
  "There are plenty of things to worry about," Jesper Dannesboe, an analyst at Societe Generale, said. "It doesn't seem quite right to say we've hit the bottom yet."
  Copper Slumps as Euro-Area Crisis May Threaten Chinese Growth
  
  

What to Watch For:

10:00 a.m. ET: New Home Sales (April)

10:30 a.m. ET: Weekly Petroleum Status Report