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Investors flee raw materials again

August 16, 2008|Tom Petruno | Times Staff Writer

Everything that went right for commodities in the first half of this year now is going very wrong -- and fast.

Investors and traders are bailing out of bets on raw materials as fears of a worldwide recession grow and the suddenly robust dollar lures money at commodities' expense.

Oil, platinum, gold, cocoa and most other hard assets were routed again Friday, which should make consumers feel better even as it sends some unlucky traders to the poorhouse.

Crude oil futures fell $1.24 to $113.77 a barrel, near a three-month low.

Gold dropped below $800 an ounce for the first time since mid-December, falling $22.20 to $786. Silver plunged $1.41, or 12%, to $12.80 an ounce, all the way back to where it was in September.

In the Reuters/Jefferies CRB index of 19 major commodities, 16 were in the red today.

The commodity price bubble in the first half was inflated by faith in the global economy (outside of the U.S.), a struggling dollar and sheer momentum. All three of those trends have reversed.

Bearish economic reports from Europe, Japan and China this week raised fresh concerns that global demand for commodities could wane significantly, said Stephen Platt, an industry analyst at Archer Financial Services in Chicago. "A weak economy is not a good thing for commodities," he noted.

Worries about the rest of the world also continue to buoy the dollar as investors run back to the currency that traditionally has been viewed as a haven.

In recent years, commodities were favored in place of the anemic dollar. Now the two have switched roles.

The euro fell to $1.468 on Friday, down from $1.483 on Thursday. It was at $1.592 just a month ago.

Finally, markets these days are all about momentum. Traders ride a price trend until it's over. And when an uptrend ends, the backlash can be violent as money flees and as traders who were "long" -- gambling on a continuing surge -- shift to being "short" to ride the new down wave.

That's the story in commodities today, after a month of mostly falling prices. "You're seeing some real aggressive liquidations" by investors and traders, Platt said.

Could this be the final blowout selling wave? Doubtful, said Leonard Kaplan, head of commodities brokerage Prospector Asset Management in Evanston, Ill.

"Once you get this [selling] momentum going, it's not going to stop easily," he said. "People don't buy 'value' anymore. They buy momentum."

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tom.petruno@latimes.com

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