Commodities across the markets retreated as the strengthening dollar reduced demand for commodities.
Oil fell for a second day on speculation its dollar-driven rally to a seven-month high last week outpaced prospects for a recovery in fuel demand.
A report today in the US, the world’s largest oil consumer, may show manufacturing in New York state contracted for a 14th month. OPEC members are waiting for signs of economic recovery and are unlikely to increase production when the group next meets in September, Qatar Oil Minister Abdullah bin-Hamad Al-Attiyah said yesterday.
“There has been more expectations that a correction is long overdue,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore. “The US dollar has strengthened and that has helped push the sentiment toward selling oil a bit.”
Crude oil for July delivery dropped as much as $1.20, or 1.7 per cent, to $70.84 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $71.05 a barrel at 3 p.m. in Singapore.
The contract fell 0.9 per cent to $72.04 a barrel on June 12, its first decline in four days, after a worse-than-expected plunge in European industrial production dented confidence in the global recovery and boosted the dollar, reducing the investment appeal of commodities. Oil reached $73.23 on June 11, the highest in seven months.
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“Some of these commodities really have put on some pretty solid gains without really much fundamental basis,” said Toby Hassall, research analyst at Commodity Warrants Pty in Sydney. Oil “is vulnerable to some corrective action, especially if we see further strength in the dollar.”
New York oil futures have gained 46 per cent in the past two months, as the dollar fell 5.6 per cent against a basket of six major currencies.
Meanwhile, gold fell to a three-week low in New York and London as a stronger dollar eroded demand for the metal as an alternative investment.
The US Dollar Index, a six-currency gauge of the greenback’s value, gained after Russian Finance Minister Alexei Kudrin said the nation had full confidence in the US currency. Gold, which typically moves inversely to the dollar, has slipped 4.5 per cent this month as the dollar index added 2.1 per cent.
“Stronger dollar sentiment has put gold under further pressure,” James Moore, an analyst at TheBullionDesk.com in London, said today in a note. “The metal could extend lower as a result.” Gold futures for August delivery slipped as much as $9.50, or 1 per cent, to $931.20 an ounce on the New York Mercantile Exchange’s Comex division, the lowest since May 20. The contract traded at $935.10 local time. Bullion for immediate delivery in London lost $4.80, or 0.5 per cent, to $934.50 an ounce.
The metal declined to $932 in the morning “fixing” in London, used by some mining companies to sell production, from $937.25 at the afternoon fixing on June 12. Gold futures declined for a second week last week, slipping 2.3 per cent.
Twelve of 29 traders, investors and analysts surveyed by Bloomberg News, or 41 percent, said gold would drop this week. Eleven forecast higher prices and six were neutral.
“We would not be surprised to see further short-term declines especially in the absence of any material jewellery, physical investment or ETF demand,” John Reade, UBS AG’s head metals strategist in London, said today in a report.
Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, has remained unchanged at 1,132.15 tonnes since June 5, the company’s website showed. Gold held in ETF Securities Ltd.’s exchange-traded commodities rose to a record 7.681 million ounces on June 12, from 7.671 million ounces the day before, its Web site showed.
Copper futures fell the most in a week after a strengthening dollar reduced demand from traders who buy commodities as a hedge against inflation.
The US Dollar Index, a six-currency gauge of the greenback’s value, rose as much as 1.4 percent, heading for its third gain this week. The S&P GSCI Index of 24 raw materials fell as much as 2.2 per cent, with the sharpest losses in lead, cocoa and zinc.
Commodities often move inversely to the dollar as traders use raw materials as alternative assets.
“Some of the buying is coming out of the commodities today because of the stronger dollar and that’s hurting copper as well,” said Patrick Chidley, a Barnard Jacobs Mellet LLC analyst in Stamford, Connecticut.
Copper futures for July delivery fell 7.15 cents, or 2.9 per cent, to $2.3735 a pound on the New York Mercantile Exchange’s Comex division, the steepest drop for a most-active contract since June 3. The most-active contract still gained 3.9 percent for the week, the fourth straight advance.
Metal prices “are following the general direction of commodities,” said Randy North, a London-based RBC Capital Markets trader. “I don’t think it’s anything to be alarmed about yet.”
Copper has gained this month on signs of an improving global economic outlook and on rising demand in China, the world’s biggest metals user. Copper has climbed 8 per cent in June, and is up 68 per cent this year.
Consumer attitudes on the US economy improved in June for a fourth straight month, a private survey showed today. Copper and copper-products imports rose to a record 422,666 metric tonnes last month, China’s customs agency reported yesterday.