Following Tuesday’s worst drop in commodities in one month, the markets recovered somewhat during the overnight hours as sporadic bargain-hunters emerged and were seen as buyers. The slump we observed yesterday came on the heels of a Goldman Sachs bulletin advising profit-taking in oil and certain other commodities, after the IMF scaled back its growth projections for the US and Japan, and after the IEA warned that $100 oil is beginning to impact the global economy.
“There are real risks that a sustained $100-plus price environment will prove incompatible with the currently expected pace of economic recovery. The surest remedy for high prices may ultimately prove to be high prices themselves” opined the Paris headquartered International Energy Agency. Meanwhile, Goldman’s research notes that made the rounds among traders on Monday said that the bank would “temporarily exit” its bets on higher copper and platinum prices. The Goldman team pointed to the same threat of high oil prices as potentially slowing economic growth and cutting near-term demand for [at least] these two commodities.
The inflation fears which had been used as the principal excuse for the recent marathon runs in certain commodities were dealt quite a bit of a setback by the IMF/IEA gloomy findings. In effect, the demand destruction alarms we first witnessed in mid 2008 were sufficiently loud to temper the rampant speculation on display up to this point. As a result of Tuesday’s rush for the exits, the CRB Index fell 1.9 percent while black gold lost 3.3% and came down to near the $106.00 level. Gold was not immune to the sell-off and also lost the most value in circa four weeks amid such selling. More on the CRB and commodity cycles, later in this post.
The aforementioned stabilization efforts resulted in the midweek session opening on the positive side for the precious and noble metals’ complex. Spot gold rose $5.00 per ounce to open at $1,458.80 this morning while silver was ahead by 23 cents and started the day at $40.34 the ounce. First-line support in the yellow and the white metal is currently pegged at $1,447 and at $39.78 respectively. Platinum and palladium gained $11 and $10 respectively and were quoted at $1,782.00 and at $770.00 on the bid-side in New York. Rhodium remained at $2,300.00 per ounce after having slipped $30 on Tuesday.
In the background, crude oil managed a 40-cent gain (to the $106.65 level per barrel) and the US dollar fell marginally (0.06) to a quote of $74.80 on the trade-weighted index. Nervousness and volatility will likely continue to be felt for the rest of today’s session, albeit the economic calendar is relatively light on impactful data to come save for the release of the Fed’s Beige Book. Thursday will have a sufficient amount of attention-grabbing statistics to parse, however.