Written by Sumit Roy  |

May 23, 2012

Market Wrap: Spiking US Dollar Sends Gold ($1548) Plummeting, Oil Also Nosedives After Inventory Report

Details

Commodities fell broadly today.

Commodities and stocks plunged today, as traders continued to fret about the health of the global economy and the sovereign debt crisis in Europe. Adding to woes was the U.S. dollar, which spiked to 20-month highs. The Dollar Index was last trading higher by 0.78 percent at 82.13 — 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 13 basis points to 6.20 percent.

• Gold was 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. Prices were last trading lower by $20.40, or 1.3 percent, to $1547.90, while silver shed $0.69, or 2.45 percent, to $27.51.
  
  Platinum lost $34, or 2.36 percent, to $1407 and palladium fell by $24, or 3.94 percent, to $585.
  
  "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."
  
  
• Crude oil prices fell to fresh lows for the year, as today's broad-based selling in financial markets weighed. 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 $2.55, or 2.35 percent, to $105.86, while WTI sank $1.84, or 2 percent, to $90.01.
  
  In its Weekly Petroleum Status Report, the EIA said that U.S. crude oil inventories increased by 0.9 million barrels, gasoline inventories decreased by 3.3 million barrels, distillate inventories decreased by 0.3 million barrels and total petroleum inventories increased by 1.1 million barrels last week.
  
  
• Natural gas edged higher today, but the fuel continues to have trouble breaking through resistance near $2.75/mmbtu. Gas was last trading to the upside by $0.01, or 0.3 percent, to $2.72.
  
  
• Soybeans and wheat continued to sell off today, while corn stabilized after Tuesday's nearly 6 percent plunge. Soy was last trading lower by $0.20, or 1.4 percent, to $13.62/bushel, while wheat lost $0.18, or 2.6 percent, to $6.67 and corn added $0.06, or 1.4 percent, to $6.03.
  
  "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," added FitzPatrick. "We are seeing less support from short covering following the large recent large short position held by managed money in the CBOT wheat market."
  
  
• Copper prices on Comex fell to a fresh four-month low amid ongoing macroeconomic worries. The industrial metal was last trading at $3.41/lb, a loss of $0.07, or 2.09 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."