Fundamentals

Daily Commodities Fundamentals: China Takes An Overnight Plunge, Oil Follows

North American Commodity Update, Last Updated 8/31/2009 6:00 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Falls on Economic Recovery Concerns

Crude Oil    $69.96                    -$2.78                   -3.82%
Crude oil plunged as much as 5% in a losing day and closed below $70 for the first time in two weeks.  Crude’s fall occurred after the Shanghai Index slid 6.7% overnight prompting concerns over the strength of the economic recovery in China, the world’s second-largest energy consuming country.  It was the largest such drop since October for equities in China, and put downward pressure on oil during the early hours of U.S. equity trading.  U.S. equities were one of a vast majority of equity markets to have losing days as MSCI world shares fell as much as 1.3%.  Furthering the bearish notions, there was disappointing economic data out of Canada, a commodity-reliant economy.  Canadian GDP grew at an underwhelming 0.1% in June, falling short of a 0.2% growth expectation.  Even more disappointing was the 6.1% contraction in first quarter reading, revised down from 5.4%.  The market will need clear-cut signs of economic expansion (or contraction) to break out of the $69-$75 range.

Commodities – Metals

Gold Falls, Silver Gains

Gold Futures    $953.50           -$5.30                 -0.55%
Gold took a hit to the downside today despite some dollar weakness as investors had less demand for the commodity as an inflation hedge.  Consumer prices out of the Euro-Zone were down 0.2% and ECB member Ewald Nowotny stated that inflation is “not an immediate concern.”  Gold has been unable to break through $958 and the price appears to be waiting on the next dollar move.  The release of key economic indicators in the U.S. including housing and unemployment figures later this week could provide a push for gold and the U.S. dollar.

Silver Futures    $14.923           +$0.108                  +0.73%
Silver futures finished above water today to continue an impressive upside move.  Silver has increased over 7% in the month of August, and 32% on the year.  The commodity appears to be forming a bullish pennant over the past seven weeks.  Economic sentiment going forward will determine if a bullish breakout is in the cards.

Written by James Russell, CFDTrading Research
Questions/Comments about this article? Send them to JRussell@fxcm.com