Oil down, gold at record as US recession fears grow

Reuters, Tuesday 9 Aug 2011

Commodities are erasing their losses as investors go bargain-hunting for oil and copper, relying on China's economic strength to support prices

Commodities erased some losses as bargain-hunting on Tuesday helped oil claw back most of a fall of nearly 3 per cent and copper pull away from an eight-month low hit during a sell-off triggered by fears of a global recession.

Earlier, Brent crude had plunged to a six-month low, while London copper fell for a fifth straight session after a U.S. credit downgrade intensified slowdown fears, sending gold to an all-time high for a second day in a row.

Asian stock markets plunged and the Swiss franc held near a record high as investors dumped riskier assets in a global rout on concerns that political leaders were failing to tackle debt crises in Europe and the United States.

Investors are counting on China's economic strength to support commodity prices when the Western world is on shaky ground. But data on Tuesday showing China's inflation speeding to a higher-than-forecast 6.5 per cent in July suggests Beijing may have limited room to stimulate domestic growth.

"It's crucial for commodity markets that China doesn't slide. Fears of a China slowdown would really take the wind out of the markets," said Citigroup analyst David Thurtell.

The historic downgrade of the United States' credit rating on Friday, along with a raging debt crisis in Europe, triggered a sell-off that has knocked nearly 10 per cent off the price of U.S. crude in just two days and sent other commodities tumbling.

"It's panic at the moment," said Thurtell.

"Obviously the risks of a recession have risen but I think that if the authorities act in a timely manner there'll be no need to panic."

Investors have lost confidence that Europe and the United States can effectively address their budget deficits and fear spread of another recession after the 2008 global financial meltdown.

COMMODITIES OFF LOWS

Still, commodities such as copper and oil were off their early lows and gold edged down from a record high.

"Regardless where you are, some of these commodities do represent a reasonable value," said Jonathan Barratt, managing director of Sydney-based Commodity Broking Services.

"It was a completely different issues when we had Lehman concerns, it doesn't warrant a complete selloff, what it does warrant for us is to refigure where demand for commodities should be."

Highlighting uncertainty, U.S. gold futures for December struck a record around $1,774 an ounce before shedding some of the gains, while cash gold hit an all-time high about $1,771 an ounce, its 12th record in 20 sessions.

As investors departed stocks for bonds and bullion, holdings of the SPDR Gold Trust posted their biggest one-day gain in more than a year on Monday, sending the price of gold to a premium over traditionally more expensive platinum.

"Markets are now worried about another global recession," said Natalie Robertson, a commodities strategist at ANZ. "Gold is now more expensive than platinum, and the last time this happened was back in December 2008. That's an interesting dynamic."

Brent crude fell as much as $5 to $98.74 a barrel, the lowest intraday price since February 8. It recovered to $103.31 by 3.30 a.m. EDT, but was still around $23 off an April peak above $127.U.S. crude fell $1.2 to $80.13 a barrel, after touching $75.71, its lowest since September 2010.

A drop of 18 per cent in U.S. crude prices so far this month may spur OPEC into action, said Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp.

Three-month copper on the London Metal Exchange rose 0.7 per cent to $8,840 a tonne, paring losses after shedding 3.7 per cent to its session low of $8,446.25, the lowest since December 1, 2010. It lost 2.9 per cent in the last session.

Wheat cut losses to trade up 0.3 per cent on expectations of end-user demand following the selloff while corn was flat after recovering from a one-week low, and U.S. soy dropped to its lowest since mid-March.

 

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