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Crude oil is down for a third straight session today and natural gas is tumbling for the seventh time in nine sessions.
Maybe it’s still wishful thinking to believe that the energy bull market has been broken, but the action in oil and gas stocks suggests that the thought has crossed the minds of more than a few investors.
How about this: Shares of Exxon Mobil Corp. fell to a 52-week low of $79.85 early today. The stock has slumped 15% from its recent peak of $94.56 on May 20.
 Chevron Corp., off 88 cents to $85.51 at about 11 a.m. PDT today, has tumbled 17% since peaking at $103.09 on May 20.
The XOI index of 13 major energy stocks is down 1% so far today, the eighth drop in nine sessions. The index is off almost 20% from its May high and is just about 3% above its 52-week low reached in August.
Energy-stock investors have racked up massive paper profits over the last five years, of course, so profit-taking shouldn’t be surprising at this point.
But the weakness in the stocks is underscoring the idea that record oil prices have done some serious damage to the global economy that may well loop back into sustained lower energy consumption.
Growth is slowing even in China, which on Wednesday said its economy expanded at an annualized rate of 10.1% in the second quarter, compared with 11.9% for all of 2007.
Crude oil futures in New York were off $3.66 to $130.94 a barrel at about 11 a.m. PDT. They’ve fallen almost 10% from the record high of $145.29 on July 3.
Natural gas is off 87 cents to $10.53 per million British thermal units today. Gas has plummeted 22% from its recent peak of $13.58, also reached on July 3.
Photo: Going down, and soon? Credit: David McNew/Getty Images
The stock market looks like it dodged a couple of bullets today, but the modest rebound in the Dow Jones industrial average during the half-day session couldn’t salvage the week.
And take a guess which commodity closed at yet another record high.
The Dow added 73.03 points, or 0.6%, to 11,288.54, but lost 0.5% for the holiday-shortened week and stayed in bear-market territory, off 20.3% from its October peak.
 The broader market was much worse, for the day and the week. Investors continued to unload some of the stocks that held up best for them in the second quarter, particularly smaller issues. The Russell 2,000 small-stock index lost 1% today and 4.6% for the week, and is down 22.2% from its all-time high reached nearly a year ago.
The slow-motion crash in bank stocks also continued, suggesting no easing of the latest jitters over the financial system. On the new-lows list today yet again: Bank of America, Wachovia, Comerica, U.S. Bancorp and Zions Bancorp, among others.
The government’s report of a net loss of 62,000 jobs in the economy in June nearly matched expectations, so that was a relief to some on Wall Street.
Should it have been? The debate over whether we are, or aren’t, actually in a recession will go on, but to some analysts there’s no question anymore.
Merrill Lynch & Co.’s econo-bear, David Rosenberg, says the lesson from history is that "you don't have six consecutive monthly declines in payrolls and not be in an outright recession."
For stock investors, the issue is what the slowdown/recession/whatever will mean for corporate earnings. Analysts have a dismal view of results for the quarter just ended: Operating earnings of the S&P 500 companies are expected to be down 12.4% from a year earlier, according to Wall Street estimates tracked by Thomson Reuters.
Yet those same analysts still believe the second half will bring a big turnaround. They’re expecting a 12.7% year-over-year gain in S&P earnings in the third quarter. . . .
Read on »
Thursday is looking like a big mess for financial markets. And since everybody's bracing for trouble, maybe we won't get it, and investors can limp off to their July 4th barbecues without much additional damage to their portfolios or their psyches.
Maybe.
In any case, it'll be a short day for Wall Street ahead of the Friday holiday: Stock markets will close three hours early, at 10 a.m. PDT, because who needs an extended holiday weekend more than the New York Stock Exchange's overworked mainframe computer?
Here's what on tap today:
--Pared payrolls: The government will release its June employment report at 5:30 a.m. PDT. The consensus expectation is that the economy lost a net 60,000 jobs last month, according to Bloomberg's regular survey of about 80 economists. That would make it a sixth straight month of job losses.
A much bigger number could fan the belief that a recession is underway, which would hardly be a confidence-builder for the stock market, fresh into an official bear market Wednesday on the Dow index and the Nasdaq.
 What's scary is that, if we're about to fall into recession, we aren't even close to the level of payroll cuts in previous downturns. The economy lost an average of 65,000 jobs a month from January through May. That was just about one-third the 181,000-a-month average of the last recession (March-November 2001).
--Euro rate hike: Jean-Claude Trichet, head of the European Central Bank, has been threatening for months to raise interest rates to fight inflation -- because, hey, that's what central bankers are supposed to do, oui? At their meeting today ECB policymakers are almost certain to make good on that threat, lifting their key rate from 4% to 4.25%.
Not a big deal? Tell that to the dollar, which is nearing a new low against the euro. The European currency jumped to $1.589 on Wednesday from $1.579 on Tuesday. Its record high was $1.599 on April 22.
The Federal Reserve's key rate is 2%. Higher rates in Europe give the continent an edge in attracting capital. That underpins the euro.
And what happens as the buck weakens? Commodity exporters, who price their stuff in dollars worldwide, earn less. We just hand them another reason to keep prices of raw materials, including (especially?) oil, on the rise.
So let's get out there and enjoy the weekend, before the next $10-a-barrel jump in crude.
Photo: A wag of my finger to you, Monsieur Bernanke! Jean-Claude Trichet. Pier Paolo Cito/Associated Press
No more waiting: We’re now in a genuine bear market for the Dow Jones industrials and, for the second time this year, for the Nasdaq composite.
Zapped by another jump in oil prices, the Dow closed today at 11,215.51, down 166.75 points, or 1.5%. That left the blue-chip index off 20.8% from its record closing high of 14,164.53 reached on Oct. 9.
 The tech-heavy Nasdaq slid 53.51 points, or 2.3%, to 2,251.46, leaving it down 21.2% from its 2007 peak. The Nasdaq already had visited bear territory briefly in March, when it was off as much as 24% from its high before rebounding.
A drop of at least 20% is considered the threshold for a bear market. Many other broad-market indexes haven’t yet joined the bear fest, but they’re all close. "I'd say it's only a matter of time," said Art Hogan, veteran market analyst at Jefferies & Co. in Boston.
The Dow’s slide under the 20% threshold wasn’t a shock, given that the index has been battling to stay above it for days. But this still is a bell-ringer for investors, Hogan says. The last broad-based bear market on Wall Street was in 2000-02.
Crossing the 20%-loss line "says the market is struggling, and it’s struggling for some very credible reasons," he says.
The catalysts for today’s sell-off: the usual suspects, and a few more.
Oil rose to a fresh record high, nearing $144 a barrel. And just to stick the inflation knife deeper into financial markets, copper, too, surged to a record because of miners’ strikes in Peru. (Here's your bull market: The CRB index of 19 major commodities now is up 32% year to date.)
Meanwhile, the dollar slumped, an index of home builders’ stocks fell through its previous 2008 low, and General Motors’ shares dived 15% to a new 54-year low of $9.98 after a Merrill Lynch analyst warned that bankruptcy was "not impossible" for GM.
All of this is leading up to another potentially big day for markets on Thursday, when the government reports on June employment trends (a net loss of 60,000 jobs is expected) and the European Central Bank is expected to raise its benchmark short-term interest rate for the first time in a year, citing inflation. The ECB’s move could slam the dollar once again -- if currency traders didn’t get most of that out of their systems today.
Oh, and U.S. investors and traders will have to cram their responses to the jobs report and the ECB into a half day, because markets will close at 10 a.m. PDT in advance of the Fourth of July holiday. That could just stoke the volatility meter tomorrow.
Who’s ready for a long weekend?
Photo: Oh sure, they look cuddly enough when they're young. Don't be fooled. Polar bear cub Flocke at the Nuremberg zoo. TImm Schamberger/AFP-Getty Images
Weird, weird second quarter on Wall Street.
It was devastating for almost everyone holding financial-company stocks, of course. And on the flip side, almost anything tied to the energy sector was golden -- in fact, better than gold. The average energy-related stock on the New York Stock Exchange surged 18.3% in the quarter, as the price of crude rocketed 37.8%, to $140 a barrel. The price of gold was up 1.1% in the quarter, to $926.20 an ounce.
The weirdness was in a lot of what was between the extremes of financials on one end (Bank of America Corp. , down 37% in the quarter) and well-known oil and gas plays on the other (ConocoPhillips, up 24%).
 Here’s a look at some of the highlights and lowlights:
--Utilities power up: The Dow Jones utility index gained 8.7% in the quarter. Historically, electric utilities have been a classic "defensive" stock sector, meaning a place to hide in times of market turmoil. That may have helped them last quarter. The diversification moves of some of the companies over the last decade into energy trading, telecom services, infrastructure and other areas also may be a draw for some investors.
But a traditional element of utilities’ defensive appeal -- their dividend yield -- isn’t much of a lure these days. The average annualized yield of the Dow utility stocks is 3%, not much above the 2.85% yield of the Dow industrials. And for the utility industry as a whole one big question looms: Will the companies’ regulators allow them to fully pass through to customers the surging cost of fuel, as they have in the past?
--Transports on a roll: The Dow transportation stock index gained 3.4% in the three months and was the only one of the better-known indexes that was positive in the first half (up 8.3%) and that managed to reach a new all-time high (on June 5).
While airlines were hammered by soaring jet-fuel costs, their declines in the Dow transports index were offset by gains in railroad shares, including Union Pacific Corp. and CSX Corp. Soaring demand for coal and for farm commodities has been a boon for the rails, which do a big business hauling that stuff (it can’t go FedEx, after all). Even so, some of the rail giants have warned that the recent Midwest floods could hamper their business in the near term.
--Mid-cap surprise: The Standard & Poor's index of 400 mid-capitalization stocks rose 5.1% in the quarter, a tremendous showing when you consider that the big-cap S&P 500 sank 3.2% in the period.
Although energy stocks helped both the mid-cap and big-cap indexes, the mid-cap index also benefited from particular strength in non-energy sectors including biotech (companies such as Vertex Pharmaceuticals), fertilizer and chemical firms (CF Industries Holdings and FMC Corp.) and infrastructure construction companies (Quanta Services Inc.). It also got a boost from a rebound in beaten-down shares of higher-education companies (including Strayer Education and ITT Educational Services).
--Black-and-blue chips: Could Dow Jones & Co.’s decision to add Bank of America to the Dow industrials index in February been more poorly timed? That addition gave the 30-stock Dow five financial issues (the others: American Express, American International Group, Citigroup Inc. and JPMorgan Chase & Co.).
In the midst of a horrendous credit crunch, that was just asking for trouble. Not surprisingly, the renewed plunge in financial issues was a major reason for the Dow’s 7.4% decline in the second quarter. It also was a lousy three months for General Electric, General Motors and Coca-Cola Co., among other Dow issues.
What happened to the concept of blue-chips as havens in tough markets? As Wall Street’s sell-off worsened dramatically in June, big-name stocks may have suffered from a case of "sell what you can," as I explain in this recent post.
A few notes from around the markets today:
-- Can the Dow defend its lows? The blue-chip Dow industrials this morning briefly slid below their multiyear closing low of 11,740.15 reached on March 10, dropping as low as 11,725 after the latest bleak reports on consumer confidence and home prices. But the market then bounced higher. At about 10:30 a.m. PDT the Dow was up 35 points to 11,876.
 A new closing low for the Dow would reinforce the bears’ case that the spring upturn in the market was nothing but a sucker’s rally. Most other major market indexes, though, have more of a cushion between their current levels and their March lows. For more on what ails blue chips, in particular, see this post.
A new Dow low also could further complicate life for Federal Reserve policymakers, who meet on Wednesday and are virtually certain to leave their key short-term interest rate unchanged at 2%. The last thing Fed Chairman Ben S. Bernanke and peers need is another confidence-crushing event that could put more pressure on them to cut rates further -- while inflation pressures mount.
-- The state goes to the well. California today will set yields on its offering of $1.5 billion in general-obligation municipal bonds, the latest sale to raise money for the state's large backlog of infrastructure projects. Treasurer Bill Lockyer, as usual, gave small investors a chance to put in orders for the tax-free bonds ahead of institutional investors.
But the retail order period, Friday and Monday, didn’t bring in the level of orders the state saw at its bond sales earlier this year -- despite a rise in muni yields in recent weeks. Lockyer said small investors ordered $704 million in bonds, or 47% of the total offering. By contrast, the state got about $900 million in orders for its bond offering in early April. The state always pays its debts, but some investors still may be queasy about the projected $15-billion budget deficit for the new fiscal year.
-- Just leave it to Wall Street? Possible quote-of-the-day from the U.S. Senate hearing today on whether Congress should do something to kick investors and speculators out of commodity markets, or limit their presence, in an attempt to bring down prices of oil and other raw materials:
"Prohibiting investment opportunities for institutional market participants effectively substitutes the judgment of Congress for the judgment of trained financial investment professionals," said James Newsome, president of the New York Mercantile Exchange. "It would be premature to adopt a legislative solution for an unproven and unsubstantiated problem."
But let's not forget -- and I'm sure Congress won't -- that the judgment of "trained financial investment professionals" brought us the subprime mortgage debacle.
Photo: Fed Chairman Ben S. Bernanke
Congress' current favorite definition of an Enemy of the State: anyone who’s using his or her money to speculate in oil -- as opposed to those who invest to get it out of the ground for sale, or those whose money goes to pay for it at the Quickie Mart.
Both the House and the Senate have previously waded into the causes and effects of record energy prices, but this week on Capitol Hill it’s looking like open season on the speculator ranks in oil and other commodities. Four different congressional committees are taking up the question of why oil is so high -- and two of the committees are specifically looking for ways to limit the influence of speculators (some of whom insist they're really long-term investors, but no matter).
And conveniently for Congress, crude is refusing to come down on its own, closing at $136.74 a barrel Monday, not far from its recent peak of $138.54 on June 6.
 Earlier Monday, speculators were skewered at a hearing of the House Energy and Commerce Committee, where Chairman John Dingell (D-Mich.) declared, "Energy speculation has become a growth industry and it is time for the government to intervene."
If you have the time, I recommend perusing the witnesses' testimony -- both the anti-speculator testimony and the comments of those who defended the speculators. You can find it all here.
The best overall roundup from the Dingell hearing may be this one, from MarketWatch.com. It begins: "The price of retail gasoline could fall by half, to around $2 a gallon, within 30 days of passage of a law to limit speculation in energy-futures markets, four energy analysts told Congress."
Do you believe it?
In the last few weeks I’ve read nearly everything I could find on the issue of the possible investor/speculator influence on commodity prices, and here’s my unsatisfying conclusion: You can’t prove unequivocally that they are responsible for a big chunk of the price run-up in oil and other raw materials -- nor can you prove that they're having no real influence.
Of course fundamental supply and demand issues are largely behind record oil prices; the market fears a shortage, if not now, then later. But every asset bubble has a fundamental grounding. And in every bubble, it’s inevitable that buyers feed on one anothers' bullishness. Why shouldn’t that be true of the current wave of investor/speculator interest in commodities?
Whether Congress would just make things worse by intervening in markets is the question now. Speculators' presence makes markets more liquid. Kick too many of them out at once and you risk more volatility -- and perhaps even higher prices. You just don't know.
Here's what's on the Capitol Hill calendar the rest of this week:
--On Tuesday, the Senate Homeland Security and Governmental Affairs Committee, chaired by Sen. Joe Lieberman (I-Conn.), holds a hearing to discuss legislative options for "ending excessive speculation in commodity markets." I previewed the hearing here last week.
--On Wednesday the Senate Small Business and Entrepreneurship Committee will hold a hearing on home heating oil prices.
--On Thursday, the topic of a hearing of Congress’ Joint Economic Committee will be: "Oil Bubble or New Reality: How Will Skyrocketing Oil Prices Affect the U.S. Economy?"
Isn’t it a little late to be wondering about that?
Photo: Balloons attached to cars at a car dealership sway in the wind near a Shell station in San Bruno, Calif. Paul Sakuma /Associated Press
With no relief in sight from record commodity prices, Sen. Joe Lieberman (I-Conn.) has launched another salvo against speculators in those markets.
He’s holding a news conference in Washington right now to unveil three "draft proposals" that he says would "stem excessive speculation in commodities."
 Lieberman says he wants the proposals to serve as discussion points for a hearing Tuesday by the Senate Homeland Security and Governmental Affairs Committee, which he chairs.
Lieberman, recall, held a hearing in May that helped stoke the debate over the influence that pension funds and other big investors may be having on commodity prices, as they push more money into that sector to cash in on the global boom in raw materials.
His three proposals range from moderate to severe (some would say draconian) in terms of the effect they would have on who can play in commodity markets, and how. Here they are:
-- Have the Commodity Futures Trading Commission establish overall limits on the share of the commodity market that can be held by financial investors, including pension funds and other institutions. The limits would apply on a commodity-by-commodity basis.
"Specifically, the limits would cap the combined net ‘long’ position, as a percentage of open interest on the futures markets, which may be held by all persons not engaged in bona fide hedging activities," the proposal reads.
-- Clarify that current CFTC rules limiting individual speculative positions in commodities would apply to any position not related to genuine hedging. This would be an attempt to corral certain "derivative" securities that big investors have been using to ride the commodity bull market, including so-called swap contracts with major investment banks.
Under current rules, Lieberman’s proposal notes, "A bank may enter into an over-the-counter commodity swap agreement with a financial investor in which [the bank] agrees to provide a financial return based on the price appreciation of a commodity index, in exchange for a fixed payment from the investor." Current position limits don't apply to over-the-counter trading in commodities, "which has experienced dramatic growth in recent years."
-- Prohibit pension funds and university endowments with more than $500 million in assets from investing in agricultural and energy commodities, period, whether traded on a U.S. futures exchange, a foreign exchange, or over-the-counter.
Again, none of this is in bill form -- it's just being tossed onto the table for discussion at next week's hearing.
Photo: Sen. Joe Lieberman. Matt Campbell/EPA
From your grocery bill to their ears: Finance ministers of the Group of 8 wealthy nations, meeting in Osaka, Japan, on Saturday, declared that soaring food and energy costs had become the world’s biggest economic challenge -- apparently eclipsing the credit crisis in importance.
"Elevated commodity prices, especially of oil and food, pose a serious challenge to stable growth worldwide, have serious implications for the most vulnerable and may increase global inflationary pressure," the ministers said in a statement after their gathering.
The finance chiefs, including Treasury Secretary Henry M. Paulson Jr., are meeting ahead of the July 7-9 summit of G-8 heads of state in Hokkaido, Japan. The G-8 comprises the U.S., Britain, Canada, France, Germany, Italy, Japan and Russia.
 Just what their recognition of the obvious in commodity prices will mean in terms of a policy response, if any, isn’t clear. Bloomberg reported that the G-8 planned to press oil producers to boost output.
The New York Times reported on its website late Friday that Saudi Arabia would raise its output by 500,000 barrels a day in July, to 10 million barrels.
Oil prices pulled back on Friday as the dollar continued to strengthen, a relationship I explain here. Near-term oil futures in New York slipped $1.88 to $134.86 a barrel. The price was down 2.6% from the record closing high reached a week earlier -- offering a ray of hope (although every other pullback in recent weeks has been a head fake).
Even if oil retreats further, however, the upward pressure on grain and soybean prices may not abate soon, given the devastating flooding in the U.S. Farm Belt.
Corn futures in Chicago rocketed to a record high of $7.31 a bushel on Friday, up 22 cents for the day and 80 cents (12%) for the week.
Soybeans also reached a record, at $15.60 a bushel, up 23.5 cents for the day and $1.03 for the week. Wheat futures rose 31 cents to $8.82 a bushel, resuming their climb after tumbling in March and April amid projections of a bumper crop this year.
The strength in grain prices more than offset oil’s decline for the day within the Reuters/CRB index of 19 major commodities. The index closed at a new high of 445.87, boosting its year-to-date gain to 24.3%.
Bloomberg reports that "as much as 12 inches of rain fell in the Midwest this week, and some fields had five times the normal amount of precipitation since the end of May," rotting crops.
Grain prices already have become a serious source of inflation at the grocery store. The flooding threatens to make the situation worse.
The cost of cereal and bakery products within the U.S. consumer price index jumped 1.7% in May from April and was up 10.5% over the last year, more than twice the rate of inflation in general, the government reported on Friday.
Maybe you can start dusting off those overseas vacation plans, after all: The beleaguered dollar suddenly is on a hot streak.
The greenback is rallying today against the euro, the yen, the Canadian dollar and other major currencies, lifting a closely watched index of the dollar’s value to its highest level since February.
The DXY dollar index, which measures the buck’s moves against six key currencies, was at 74.13 at about noon PDT, the highest since Feb. 27. The index has jumped 2.4% this week, a big move compared with its usual shifts.
 The euro has slumped to $1.535 today from $1.542 on Thursday. The European currency peaked at $1.599 in mid-April.
Just a week ago the dollar was hammered by the government’s report of a jump in the unemployment rate in May to 5.5% from 5%. Anything that dims faith in a country’s economy usually is bad news for its currency.
But this week, sentiment toward the buck has rebounded sharply -- although not necessarily for reasons that will make average Americans feel good.
One factor is the growing belief that the Federal Reserve will begin raising short-term interest rates this fall to combat inflation. The Fed has encouraged that idea with tough talk on inflation, including a throw-down-the-gauntlet speech on Monday by Chairman Ben S. Bernanke.
"There has been a pretty significant shift in expectations on rates," said Kathy Lien, currency strategist at DailyFX.com. Higher interest rates could attract more global investors to U.S. bonds, underpinning the dollar.
Today, although the "core" rate of inflation in the government’s May consumer prices report remained relatively tame, Treasury bond yields are mostly higher after dipping early in the session. That’s a sign investors continue to bet on a credit-tightening move by the Fed later this summer or early in fall.
The dollar also is getting a boost today from a blow to the euro’s image, after Irish voters rejected the European Union’s new governing treaty -- raising new doubts about prospects for greater political unity to tackle Europe’s problems. Bloomberg has a good story here.
The Irish vote "weakens the appetite foreign investors have for euro-denominated assets," said Michael Woolfolk, currency strategist at Bank of New York Mellon.
For the Bush administration and the Fed, almost anything that strengthens the dollar is welcome at this point, because a healthier buck could put downward pressure on prices of oil and other commodities, as I explain here. Crude oil today is trading lower, off $1.86 to $134.88 a barrel around noon PDT.
Photo: Michael Probst/Associated Press
The news is all bullish today -- provided you own commodities.
After a two-day pullback, prices of most raw materials are soaring again. Anyone who’s short in these markets (betting on lower prices) is getting murdered, and that’s just adding to the upward pressure as the shorts buy to close out their wrong-way bets.
The Reuters/CRB index of 19 major commodities was up 2.6% to a record 443.81 at about noon PDT. The index's year-to-date gain: 23.7%.
 Contrast that with the 8.5% year-to-date loss in the Standard & Poor’s 500 index, and it’s easy to see why many stock investors feel more and more like they’re on the wrong train. Stocks are being hammered again today.
Speculators keep getting the blame for the commodity-price juggernaut, but once again, they’re getting plenty of support from the fundamentals.
Today, the government said U.S. oil inventories fell by 4.6 million barrels last week, to 302 million. Inventories have dropped for four straight weeks.
My Times colleague Elizabeth Douglass reports here that oil refiners have "opted to use up existing supplies instead of buying new barrels amid the crude market’s biggest bull run ever."
In any case, "You basically have not seen the rebound in inventories that is typical for this time of year," said Stephen Platt, a commodities analyst at Archer Financial Services in Chicago. Not surprisingly, lower supplies on hand just stoke the bullish case for prices down the road.
Crude oil futures are up nearly $6 a barrel today, to just over $137, knocking on the door of the record close of $138.54 on Friday.
"There were a lot of people who were short, thinking that crude would break," Platt said. That bet has been a disaster.
Meanwhile, in the Farm Belt, fields are underwater from torrential rains. That is driving corn futures prices to another record today, up 30 cents, or 4.5%, to $7.03 a bushel. Corn has rocketed 54% year to date.
The government on Tuesday estimated that U.S. corn production would drop 10% this year from last year because of flooded fields across the Midwest.
Wheat and soybean prices also are surging today. As are nickel, sugar and cotton prices.
Within the CRB index, just coffee and orange juice are down in the session.
So hopefully, you enjoyed your breakfast today -- as long as it was liquids only.
Photo: Charlie Neibergall / Associated Press
Rising inflation pressures are a serious threat, as Fed chief Bernanke has been telling us over and over again lately.
Yet the premier inflation hedge -- gold -- has been struggling since crossing the $1,000-an-ounce mark for the first time in mid-March.
And today, after Bernanke repeated in a speech late Monday that the Fed wouldn’t allow inflation to take off like some helium balloon (OK, I’m using literary license here), gold took a big hit: Near-term futures in New York sank $26.80, or 3%, to $867.90 an ounce.
 The price now is off 13.5% since the metal peaked at $1,003 on March 18.
Gold’s woes today stemmed from a jump in the dollar, a move that Bernanke and the White House helped engineer, as I explain here.
Gold is, in effect, a rival currency. When the dollar is being devalued -- which has been the major trend since 2001 -- gold shines as an alternative. The flip side is that a rising dollar often dims the appeal of gold to investors and speculators.
As for the metal’s role as an inflation hedge, a turn in the dollar hurts on that count, too, because a stronger greenback is potentially anti-inflationary (it makes imports cheaper, for example).
Even before the dollar’s revival this week, though, gold has been having trouble sustaining a rally since it crested the $1,000 mark.
Those record prices have caused some potential buyers to balk: The World Gold Council said global gold consumption slumped 16% in the first quarter from a year earlier, to 701 tons. And jewelry demand, which accounts for the lion’s share of gold consumption, tumbled 21% in the quarter to 445 tons, the lowest since 1993.
Still, some gold bulls are undaunted -- particularly those who believe the public is inexorably losing faith in paper currencies.
For sheer hyperbole, you can't beat this quote from a Bloomberg interview Tuesday with Peter Hambro, co-founder of London-based Peter Hambro Mining, which mines gold in Russia: The metal, he said, would attract more buyers because of "fundamental mistrust of the financial system of all inhabitants of the world."
That would be a lot of gold buyers, if he's right.
Photo: American Gold Eagle coin. Genaro Molina/Los Angeles Times
The Bush administration and the Federal Reserve are getting what they wanted: a big rally in the dollar and a drop in oil prices.
But the cost is higher interest rates -- great for savers, lousy for home buyers.
The dollar has jumped today to a three-month high of 107.37 yen from 106.10 on Monday, while the euro has fallen to $1.545, down from $1.565 on Monday and from $1.577 on Friday.
 Crude oil was off $3.12 to $131.23 a barrel at about noon PDT, after rising as high as $137.98 early in the session.
Let’s recap the last few days: Oil soared to a record high of $138.54 a barrel on Friday, in part because the dollar slid and the stock market dived after a disturbingly weak U.S. employment report for May.
Here's the widespread view on Wall Street: The administration and the Fed looked around for a way to help pull oil back down, and they decided to focus on the dollar. If they can boost the greenback’s value they might reduce global investors’ and speculators' appetite for commodities, which have been rallying in part because a weak dollar makes commodities look more appealing than other dollar-denominated assets.
 So early on Monday Treasury Secretary Henry M. Paulson Jr. tells CNBC that the administration won’t rule out jumping into the currency market to boost the dollar.
Fed Chairman Ben S. Bernanke follows that with a speech Monday evening in which he basically says the economy will be OK, and the Fed is more worried about inflation. The hint therein: The Fed’s next step with interest rates is more likely to be an increase than a cut.
Today, yields on Treasury bonds are surging on Bernanke’s warning. The two-year T-note yield was at 2.90% at about noon PDT, up from 2.71% on Monday and 2.38% on Friday. That’s a massive move in two days.
And as U.S. bond yields rise, that underpins the dollar’s value by making bonds more attractive to global investors.
"What Bernanke has done to U.S. yields has given the dollar a lot more support than anything else he could have said," said Daniel Katzive, a foreign exchange strategist at Credit Suisse in New York.
But rising bond yields will put upward pressure on mortgage rates, too -- which is about the last thing the crippled housing market needs.
Wall Street ought to know better than most: There is no free lunch.
Photos: Treasury Secretary Henry M. Paulson Jr. (Karen Bleier/AFP/Getty Images) and Fed Chairman Ben S. Bernanke (Susan Walsh/Associated Press)
Treasury Secretary Henry M. Paulson Jr. is trying to make currency speculators think twice before betting on a weaker dollar. And he’s having the desired effect, which also may be helping to pull oil prices lower today after Friday’s manic surge.
The greenback is rallying briskly against the euro and the yen after Paulson, on CNBC, said he wouldn’t rule out the idea of Treasury intervention to boost the U.S. currency’s value.
 "I would never take intervention off the table or any policy tool off the table," he said. "And I just can’t speculate about what we will or won’t do."
The euro has slumped to $1.563 in New York trading from $1.584 in Asia overnight, a big move for one day.
Paulson’s boss, President Bush, also tried to jawbone the buck higher today. Speaking to reporters before leaving for a European trip, Bush reiterated that "a strong dollar is in our nation’s interests."
"They’re putting markets on notice," said Jay Bryson, global economist at Wachovia Corp. in Charlotte, N.C.
Maybe that's because they’re running out of other ideas to deal with the debilitating effects of soaring oil prices, which on Friday rocketed $10.75 a barrel to a record $138.54.
Because commodities are priced in dollars worldwide, commodity producers earn less as the U.S. currency loses value. That boosts their incentive (and the incentive of speculators) to keep prices moving up as the dollar slides.
If, instead, the dollar were to strengthen, that could put downward pressure on commodity prices. A more robust dollar also could encourage global investors to favor U.S. stocks and other assets over commodities, and dim the need for raw materials as an inflation hedge. (Yes, that might be wishful thinking, but stranger things have happened.)
Federal Reserve Chairman Ben S. Bernanke also turned up the heat on dollar bears last week, as I noted in this post.
The oil market could just be tired from its record run on Friday, but prices have come off today as the dollar has rebounded. Near-term crude futures in New York were down $3.87 to $134.67 a barrel late in the trading session.
Talk is always cheap when it comes to government policy on the dollar, but with Bush, Paulson and Bernanke all chattering on the issue, currency speculators at least have to be prepared that the White House could actually be serious.
Photo: Treasury Secretary Henry M. Paulson Jr. Karim Jaafar/AFP Photo
Crude oil continued to slide today, but the natural gas market apparently didn’t get the memo about lower prices.
Natural gas futures jumped to the highest level since December 2005 as some traders focused on predictions for a nasty hurricane season that could interrupt gas supplies from the Gulf of Mexico.
 Near-term gas futures in New York rose 16 cents to $12.38 per million British thermal units. The price has risen 6.3% since May 21 -- while crude oil has fallen 8.2% in the same period, including a drop of $2.01 to $122.30 a barrel today.
Oil has been everybody’s favorite commodity to hate this year as the price has surged, but it’s a piker compared with the rally in natural gas. The latter is up 66% year to date; oil is up 27%.
Crude prices pulled back today after the government reported a further drop in gasoline use and a jump in inventories, as noted here. At last, high oil prices are bringing on what economists like to call "demand destruction." We’ll just call it what it is: Many consumers can’t afford to drive their big honkin' SUVs anymore.
As for natural gas, this is the time of year when U.S. inventories are rebuilt after the winter draw-down. Gas supplies currently are about 17% below their level of a year ago, so that's a factor underpinning prices.
Also, as this Bloomberg story notes, a widely followed forecaster is predicting four major Atlantic hurricanes this year. That is encouraging natural-gas bulls who see the potential for Gulf supply interruptions. (Which, by the way, could affect oil too, but let's not go there for now.)
Summer weather is another variable for natural gas prices. Extreme heat could boost air-conditioning demand and thus energy use by natural-gas-fueled power plants.
So even if you aren't paying The Man more at the pump, you may be paying him more at the thermostat.
Photo: A liquefied-natural-gas tanker arriving at a Gulf of Mexico terminal in April. Steve Campbell/Associated Press
The commodity bull market seemed to be under attack from all sides Tuesday, triggering a broad retreat in prices.
But considering the big guns aimed at the market, the losses were fairly modest. The Reuters/CRB index of 19 commodities fell 1.4%. Oil was one of the more serious casualties, off 2.7% to $124.31 a barrel in futures trading.
Under political pressure to corral investors and speculators who have been accused of helping to drive prices of grain (among other commodities) to record highs, the Commodity Futures Trading Commission announced that it would require certain investors to disclose more information about their holdings in ag markets.
"We want to encourage access to markets, but we want to be sure too much money isn’t distorting markets artificially," acting CFTC Chairman Walter Lukken told reporters in a conference call. More on the CFTC’s announcement here.
 Still ongoing: the agency’s six-month-old probe of oil-futures trading, which was just publicly disclosed last week.
Meanwhile, the Senate Committee on Commerce, Science and Transportation held a hearing Tuesday on possible energy-market manipulation. Investment legend George Soros, head of Soros Fund Management, was called as a witness because of his "life-long study of bubbles" (his words).
His conclusion about the oil market: Fundamental demand is driving prices, but institutional investors in commodities (such as pension funds) "reinforce the upward pressure on prices."
Said Soros: "I find commodity index buying eerily reminiscent of a similar craze for ‘portfolio insurance’ which led to the stock market crash of 1987. In both cases institutions are piling in on one side of the market and they have sufficent weight to unbalance it."
Nonetheless, he said he wasn’t predicting an "imminent" crash in oil prices.
Finally, Federal Reserve Chairman Ben S. Bernanke helped undermine commodity markets by appearing to draw a line in the sand on the dollar’s long slide. I explain here, but in a nutshell, a weaker dollar would help boost commodity prices, while a stronger buck would be a drag on prices.
Photo: George Soros before the Senate. Stefan Zaklin/EPA
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