Oil retreats below $80/Gold surges past $700 mark as investors sought refuge from the falling dollar/Dollar declines to record low against the euro

Oil retreats below $80
By Chris Flood
Copyright The Financial Times Limited 2007
Published: September 13 2007 11:57 | Last updated: September 13 2007 11:57


Oil prices continued to trade close to $80 a barrel on Thursday after soaring to record levels in the previous session on news of a huge fall in US crude stocks.

Nymex October West Texas Intermediate fell 17 cents to $79.74 after hitting a record $80.18 a barrel in the previous session.

ICE October Brent dropped 37 cents to $77.31 a barrel, trading close to the previous session high of $77.93.

Technical analysts described crude as overstretched but said that if crude could establish a hold above the key psychological $80 level, this could pave the way for a move towards $87.50.

Earlier this week, the Organisation of the Petroleum Exporting Countries moved to ease the supply situation by agreeing to raise output by 0.5m barrels a day from November 1.

Although analysts welcomed the Opec move, some described the production increase as a token gesture which would be insufficient to ease tight supplies.

This view was supported by Wednesday’s announcement of a huge fall of 7.1m barrels in US crude stocks last week, suggesting that crude [market] tightness in Europe and Asia was also affecting North American markets.

“We thought Opec could help, but it was too little, too late, and commodity inflation paints the Fed into a corner and leaves it between the devil and the deep blue sea,” said analysts at Cameron Hanover: “What really helped push oil prices higher was the sudden reaction of the dollar to lower US interest rates in the open markets. The Fed does not act until next Tuesday, but markets have been anticipating a rate cut of 25 to 50 basis points for more than two weeks. That has pressed bond yields lower, which has kicked the US dollar in the teeth, which has sent traders to the long side in commodities.”

Profit taking dragged wheat prices lower after they soared to a record in the previous session after the US Department of Agriculture predicted that global wheat stocks would shrink to their lowest levels for 30 years.

In electronic trade in Chicago, CBOT December wheat contract dipped 2 cents to $8.58½ a bushel after hitting a record $9.11¼ in the previous session.

Corn prices were steady with CBOT December 1¼ cents lower at $3.55¼ a bushel in spite of the USDA’s forecast of a a record corn harvest of 13.3bn bushels this year as heavy rainfall in August provided much-needed moisture for the crop.

US corn yields are expected to be the second highest on record at 155.8 bushels an acre, from last month’s estimate of 152.8 bushels an acre, compared with the high of 160.4 bushels an acre achieved in 2004.

Traders said now that some of the uncertainty over the size of the US corn crop had diminished, attention would now return to the strength of demand trends which could push prices higher.

Gold eased to $705.45 a troy ounce but maintained its hold above the key $700 level.

Traders expect to see gold prices try to challenge last year’s intra-day high of $730, driven by a combination of high inflows into exchange traded funds and concerns about the US economy leading to US dollar weakness.




Gold surges past $700 mark as investors sought refuge from the falling dollar
By Javier Blas, Commodities Correspondent
Copyright The Financial Times Limited 2007
Published: September 8 2007 03:00 | Last updated: September 8 2007 03:00


Gold yesterday surged through the $700-a-troy-ounce level for the first time in 16 months as investors sought refuge from the falling dollar in the wake of weak US jobs data.

Spot gold in London hit $707.10 an ounce, its highest level since May 2006, as expectations of acut in US interest rates pushed the dollar to $1.3798 against the euro.

The sharp rally in gold, which later traded at $703.7 an ounce, up $8.50 on the day, takes the metal close to its 26-year high of $730 reached in May 2006.

Silver rose to $12.60 an ounce, still well below last year's high of almost $15.

The price surge was driven by robust physical demand for the metal from India, China and other emerging markets as well as gold's appeal as a safe-haven asset, traders said.

James Gutman of Goldman Sachs said: "Gold will continue to face upside pressure, driven largely by the weakness in the US dollar."

He said gold prices could rise to $725 an ounce in the next 12 months.

Investors are betting the US Federal Reserve will cut its main interest rate by up to 50 basis points at its September 18 meeting, to cushion the US economy against the credit squeeze.

Michael Lewis of Deutsche Bank said gold could reach $740 an ounce on the prospect of more US interest rate cuts driving the dollar lower.

"There is a growing risk ofdollar weakness over-shooting," said Mr Lewis.

A reduction in US interest rates would increase the downward pressure on the dollar, making dollar-priced gold cheaper for investors in other currencies.

Robin Bhar of UBS said physical demand for the metal was accelerating in India, the world's largest gold consumer, China and the Middle East. "Gold's underlying fundamentals are improving," he said.

Consumer demand in India jumped 72 per cent in the first half of 2007, compared with the same period a year earlier, thanks to less volatile gold prices and strong economic growth, according to the industry-backed World Gold Council.

Second-quarter consumer demand in India "reached an astonishing 317 tonnes - equivalent to half global mine output in that period," the council said.

Global gold demand increased 11 per cent in the first half of the year, compared with the same period a year ago, despite high prices, the council said. Total supply fell 4 per cent in the same period.

The gold price surge comes in spite of strong sales by central banks in industrialised countries, which have sharply reduced their precious metal holdings since 1999.

Dollar declines to record low against the euro
By Peter Garnham in London
Copyright The Financial Times Limited 2007
Published: September 13 2007 03:00 | Last updated: September 13 2007 03:00


The dollar dropped to a record low against the euro yesterday as fears over the US economy raised expectations that the Federal Reserve would move to lower US interest rates next week.

The prospect of a cut in US rates has reduced the attractiveness of the dollar, pushing it lower against the euro for the past seven trading sessions.

The dollar has fallen more than 2 per cent against the euro in the past week, dropping to a low of $1.3910, breaching the previous record low of $1.3852 of July 24.

Meanwhile, the dollar index, which tracks its value against a basket of six leading currencies, fell to 79.404, its lowest level since September 1992.

The dollar had been benefiting from recent turbulence in financial markets as US investors repatriated funds in the face of rising risk-aversion. But that trend stopped as weak economic data saw the focus of the currency markets switch to the challenges faced by the US economy.

"In the past, the dollar has been a clear beneficiary of rising risk-aversion but this has been dependent on it being a global phenomenon rather than a US problem," said Mitul Kotecha, head of global foreign exchange research at Calyon. "Over recent days, the problem has shifted back to being US-centric as it increasingly appears the US economy will suffer more than elsewhere."

Last Friday's US payrolls report was the catalyst for the change in mood. It revealed the first drop in US employment in four years - evidence that problems in the country's mortgage market were spilling over into the wider economy. Markets then moved to price in a cut in interest rates from the Fed at its meeting on September 18.

The European Central Bank signalled last week that it was maintaining its monetary tightening bias and was ready to raise eurozone rates once stability returned to world markets.