Fundamentals, Oil & Gold

Stronger Dollar Leads to Fallback of Crude, Gold, and Silver Prices

North American Commodity Update, Last Updated 7/2/2009 4:27 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Prices Fall After Disappointing Non-Farm Payrolls Report

Crude Oil (WTI)   $66.810                              -$2.500                             -3.61%
Crude prices fell drastically to a 5-week low during today’s session as a disappointing US Non-Farm Payroll report hinted towards a continuation in weak crude demand. The US NFP report revealed larger-than-expected job loss figures with the headline exceeding the 365K median forecast at a sizeable 467K. The report discouraged any hopes for an immediate economic turnaround, sending the safe-haven US Dollar higher against major counterparts. Increased risk aversion helped the dollar perform specifically well against the Canadian dollar and the Australian dollar, two currencies tied closely to commodity prices. Crude prices and the US dollar often trade inversely as investors use crude to hedge against a weakened US dollar. The rising unemployment rate coupled with low consumer confidence and higher retail prices will likely keep demand for crude low, maybe for the rest of the summer.

Upcoming Department of Energy Inventories

Commodities – Metals

Safe-haven Metals Lose Due to Stronger US Dollar

Gold                   $931.000                           -$9.575                           -1.02%
Gold prices fell during the session largely due to the dollar’s impressive performance against its major competitors.Today’s disappointing NFP report led to a return to financial market risk aversion, pushing the dollar higher against all except the Japanese Yen. When the US dollar appreciates, the value of Gold usually falls; Gold and the dollar tend to trade inversely when investors use the metal as a hedge against a weak greenback.  The NFP report hints towards a prolonged economic recession, settling any fears of short-term inflationary risk. Further speculation about the health of the US economy will drive the price of Gold.

Silver                 $13.390                   -$0.370                          -2.69%
Silver futures decreased on the day mostly for the same reason as Gold; the increased value of the dollar led to a decline in prices for the precious metals.. Recall that unlike Gold, Silver’s value is also dependent on global industrial reports. With numerous economic indicators pointing towards an extended recession, industrial growth may remain subdued. However, the US Factory Orders report was a source of potential optimism for Silver; it exceeded expectations by 33%, while manufacturing payrolls dropped less than expected.

-Written by Jay Steinberg, CFDTrading Research
Questions/Comments about this article? Send them to JSteinberg@fxcm.com