The slide in everything from copper to crude reflects growing deflation risks.
WITH ALL THE ATTENTION FOCUSED on the so-called flash crash of May 6, there's been a nearly silent crash in commodities.
From copper to crude oil to corn, prices have been tumbling for the better part of a month. The Thomson Reuters/Jefferies CRB index hit a seven-month low, dropping 2% Monday, which brought its loss to nearly 10% in the past month.
The commodities decline has been overshadowed by news of the European debt crisis, the oil-spill disaster in the Gulf of Mexico and the flash crash which caused a thousand points of fright in the Dow Jones Industrials a couple of weeks ago. But the slide in commodities has been picking up speed in the last week and, anomalously, has come against the backdrop of soaring gold, which hit a record price in dollars of $1,249 an ounce last week.
The proximate factor driving down commodities has been the rise in the dollar. "A strong dollar, all things being equal, equates to a weak commodity market. It has always been thus; it shall always be thus," writes Dennis Gartman, editor of the Gartman Letter, which is the first read in the morning for traders and investors around the globe.
In particular, Dr. Copper is looking sickly. "The metal with a PhD in economics," so named for its sensitivity to the global economy, is down more than 20% in the past month. Clusterstock.com headlined its chart of the day "Now This Is a Deflationary Collapse," which seemed no exaggeration as copper plunged 6.4% Monday....MORE
HT: FT Alphaville
And from Bespoke:
As we've seen recently, the different parts of the broad "commodities" asset class can move in very different directions at times. Below we provide our trading range charts for an agriculture commodity ETF (DBA), an oil ETN (OIL), and the gold trust (GLD). As shown, agriculture and energy are extremely oversold at the moment, while gold (along with other precious metals) is overbought.