Commodities slump after sharp dip in oil markets

Published: 18 September, 2012 12:40

Oil barrelLate trading on Monday saw oil prices plummet briefly as the benchmark WTI price lost $4 in a few minutes, fuelled by rumours of a possible release of stocks from USA strategic reserves.

Coming in the wake of the Federal Reserve’s latest round of quantitative easing, with which Chairman Bernanke has promised to inject a further $40 billion monthly into mortgage-backed securities until employment figures improve, this latest shock underlines the skittish state of commodity markets.

Prices across energy and precious metals markets had been rising in anticipation of last Friday’s FOMC announcement, with gold peaking above $1770 before retracing 0.7% on the London spot market in the space of 22 minutes. Silver fared worse, with a 1.6% decline.

With the downward trend across gold, silver, platinum and palladium all persisting into Tuesday, online traders will be wondering which way to turn. Although the run-up to QE3 had seen the markets in a bullish mood, this rapid turnaround will have caught many by surprise.

There have also been dramatic reversals across agricultural commodities which had seen rising prices as a consequence of the record-breaking US drought threatening harvests. With harvesting now under way at record speeds, the upward pressure on prices has eased, with the all important soy and corn markets falling 3% by Monday as farmers sell their inventory rapidly to avoid potential storage problems associated with this year’s poor growing conditions.

Continuing volatility will present opportunities for nimble online traders, as Monday’s dramatic oil swings demonstrated, although in the longer term the ongoing Eurozone recession, poor US employment figures and China’s foundering growth could all prove bearish for the commodity markets.

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