Despite a large drop in crude inventories, crude prices declined for the session as global equities sputtered throughout the day. Crude prices have benefited in the past months from an increase in investor risk appetite, but today was the source of weakness as prices fell despite bullish supply data.
[U][B]Commodities - Energy[/B][/U]
[B]Crude Prices Decline As US Retail Sales Release Disappoints[/B]
[B]Crude Oil (WTI) $57.800 -$1.050 -1.78%[/B]
Despite a large drop in crude inventories, crude prices declined for the session as global equities sputtered throughout the day. Crude prices have benefitted in the past months from an increase in investor risk appetite, but today was the source of weakness as prices fell despite bullish supply data. Even with the unexpected drop in supplies, crude fundamentals remain stacked against current prices. In the face of several weeks of negative fundamental data, crude prices still gained on market optimism. Now that hopes of a near-term economic rebound are being challenged further by releases, crude prices will likely cave in to those fundamentals. In the way of data, US housing figures continue to disappoint while today is Retail Sales report (declining 0.4%) suggests sharper contraction in consumer spending than expected; all factors that would place further downward pressure on crude prices. Given the interconnected nature of markets, investors selling positions to meet margin calls today also exacerbated price declines. As it stands, fundamental pressures that were unrequited for the past few months will likely begin to push prices lower. Barring a return to equity rallies, expect prices to decline in the near to medium term.
[U][B]Commodities - Metals[/B][/U]
[B]Safe-havens Gain As Equities Continue To Decline[/B]
[B]Gold $926.600 +$2.700 +0.29%[/B]
Gold prices continued to rise modestly today as equity markets turned sour. While gold is benefitting from the uncertain nature of the economy, a recovery would mean that much of that source of strength would dissipate. On the other hand, the beginnings of a recovery would also open up the way for dormant inflationary pressures to emerge. Given the sheer amount of capital injected into the economy, this is a considerable risk. Nevertheless, as the economy continues to sputter, financials remain weak, and housing data points to perhaps even more pain in the coming year, markets will likely continue to ebb and flow with sentiment. As such, until the economy shows signs of a more certain direction gold prices will likely trade flat or show only modest gains.
[B]Silver $13.9800 -$0.235 -1.65%[/B]
Silver prices gave back most of yesterday’s gains as equity markets turned sour. Despite conditions that are normally beneficial for safe-havens, silver is used in many industrial applications and is thus subject to weakness from lower global production. Recently, this paradoxical relationship with gold has begun to resurface and could become more pronounced as the economy turns weaker. Some investors of the metal will find that global weakening in the economy will lead to lowered demand for the metal. In response, they will likely sell their holdings, placing further strain on prices. Strength that would be provided by its safe-haven status could be offset by this. Consequently silver will likely gain modestly in the short-term.