Commodity plunge picks up speed again as bulls flee

Everything that went right for commodities in the first half of this year now is going very wrong -- and fast.

Investors and traders are bailing out of bets on raw materials amid fears of a worldwide recession and as the suddenly robust dollar lures money at commodities' expense.

Oil, platinum, gold, cocoa and most other hard assets are in another rout today, which should make consumers feel better even as it sends some unlucky traders to the poorhouse.

Crude oil futures were down $2.58 to $112.43 a barrel about 11:45 a.m. PDT, the lowest price since mid-April.

Gold is below $800 an ounce for the first time since mid-December, off $22.20 to $792.30. Silver is bombing, down $1.45 to $12.91 an ounce, all the way back to where it was in September.

In the Reuters/Jefferies CRB index of 19 major commodities, 18 are in the red today.

The commodity price bubble in the first half was inflated by faith in the global economy, a struggling dollar and sheer momentum. All three of those trends have reversed.

Bearish economic reports from Europe, Japan and China this week raised fresh concerns that global demand for commodities could wane significantly, said Stephen Platt, an industry analyst at Archer Financial Services in Chicago. "A weak economy is not a good thing for commodities," he notes.

Worries about the rest of the world also continue to buoy the dollar as investors run back to the traditional haven currency. Commodities had been favored in place of the anemic dollar in recent years. Now the two have switched roles.

The euro has fallen to $1.467 today, down from $1.483 on Thursday. It was at $1.592 just a month ago.

Finally, markets these days are all about momentum. Traders ride a price trend until it’s over. And when an uptrend ends, the backlash can be violent as money flees and as traders who were "long" shift to being "short" to ride the new down wave.

That's the story in commodities today, after a month of mostly falling prices. "You're seeing some real aggressive liquidations" by investors and traders, Platt said.

Could this be the final blowout selling wave? Doubtful, said Leonard Kaplan, head of commodities brokerage Prospector Asset Management in Evanston, Ill.

"Once you get this [selling] momentum going, it's not going to stop easily," he said. "People don't buy 'value' anymore. They buy momentum."

Photo: Out of the way -- the bulls are leaving Commodity Town! (And Pamplona.) Credit: Jim Hollander / EPA

Comments

[James Monachino]

After 7 Years:
Of commodity price increases the bubble is breaking. A nice first step in what will be a multi year pull back precipitated by a World Wide economic slow down.

FYI:
Looking for the JF/CRB Cash Index to start finding temporary support around the 500 level and then continue down in a saw tooth action finally forming an extended saucer bottom.

World Wide Slow Down:
I am hearing that nothing can stop the growth of Countries such as China and India because they are; To big, To much momentum, Don't need the USA to continue to grow etc.... As this World Wide Economic Malaise virus spreads, they will be even more vulnerable than the more mature economies. We are all interconnected and don't have the luxury of only experiencing positive economic outcomes.

James Monachino

[Bill]

Entities which speculate in commodity markets with no intention of taking actual deliveries should be barred from the marketplace. Oil refiners, airlines, trucking companies and others which qualify should have a specific license to hedge their fuel costs. Wall Street gamblers must be ejected from the game.