Commodity plunge picks up speed again as bulls flee

This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

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.’