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Even metals and oil drop on US recession fears

lil dickie said: "Now this is bit counter intuitive. But even oil and metals [url=http://www.ft.com/cms/s/0/2279daf0-c810-11dc-94a6-0000779fd2ac.html?nclick_check=1]dropped[/url] in anticipation of a worsening recession. [quote] Energy and metals commodities markets fell on Monday, pressured by worries that the stimulus fiscal package proposed by US president George W. Bush would not be enough to stop the American economy falling into recession. The falls, however, were less acute that in the stock market where shares dropped by up to 7 per cent. Crude oil prices fell about 2 per cent while key base metals such as copper and aluminium dropped by between 2 and 4 per cent. European agricultural commodities, on the other hand, were mixed with milling wheat in Paris and coffee in London posting gains. In spite of market turbulence, gold prices fell as the US dollar gained against the euro. Spot bullion in London moved 2 per cent lower to $864.7 a troy ounce, about $50 below its recent all-time high of $914 an ounce.[/quote] This seemingly goes against what should happen...or does it?"

newinvestor123 said: "[QUOTE=lil dickie;61671]Now this is bit counter intuitive. But even oil and metals [url=http://www.ft.com/cms/s/0/2279daf0-c810-11dc-94a6-0000779fd2ac.html?nclick_check=1]dropped[/url] in anticipation of a worsening recession. This seemingly goes against what should happen...or does it?[/QUOTE] I think you're confusing oil and metals with gold. The price of all commodities (especially oil) tends to fall when growth slows due to lower demand. Gold, however, has that history of being a store of value, and according to what I've read, it tends to rise during scary times as people buy it up to protect their assets, especially if a currency is in danger of collapsing. This is still the case, but lately gold has been more volatile and has had a higher correlation with the market. Some speculate that this is due to hedge funds selling their gold during panics to meet margin calls, which makes sense to me. I don't know the real reason, but what I have noticed is that the correlation is not a sure thing. Gold has it's own set of trading characteristics - Sometimes it trades with the market, sometimes it does the opposite."

lil dickie said: "Yeah you are probably right. I can see the point about oil. If the economy is totally screwed people wont be able to fill their cars. I assumed "metals" included gold!"

OilKing said: "I work in the oil industry and while oil futures are directly tied to growth, they are not in jeopardy of falling off too far, even if America falls into a deep recession. It doesn't even matter if Americans use less gas. Asia now consumes more oil than the US and demand growth on a global basis, especially in developing countries, will remain strong regardless of the US economy. Here's more info from a cnn report - I'll provide the link to the article if you would like to see it..... "But oil prices should stay above the $60 a barrel mark, according to experts. Strong growth in Asia, where a recession is seen as less likely, combined with runaway demand in oil-rich Middle East economies, is likely to keep demand, and prices high no matter what happens in the U.S., said Wardell. Even in a recession, there have only been a couple of years where demand in this country has actually fallen, said Wardell. "It just doesn't happen," he said. Schork sees oil prices pulling back to the $60s or $70s if there is a recession and retail gasoline prices in the $2.50 to $2.70 range, but he thinks any pullback will be relatively brief. "By no means am I predicting the end of the bull run," he said." Just my humble opinion - Patrick B."

AlfredSokol said: "Nice post, Patrick. Welcome aboard. The thing about oil is: people need to drive to get to work so it's one thing no one will just cut back on."

Airelon said: "Yeah - China and India are the main thing here. I remember listening to a GMR shareholders meeting last year, and the CEO mentioned when answering a question from JP Morgan - that China is the insatiable monster. They can't get oil to China fast enough."

AlfredSokol said: "Then Chinese products should start becoming more expensive. Yes?"

Airelon said: "If the spot rate ever catches up. My lord, the spot tanker rate has been falling through the floor lately."