Gold Futures Hit $1,000 Benchmark on Declining Dollar, While Crude Oil Price Hits New Record at $110 a Barrel.
Gold futures hit $1,000 an ounce for the first time Thursday, pushed past the benchmark by the sinking dollar and record crude oil prices. The dollar fell below 100 yen during Asian trading Thursday, its weakest level against the Japanese currency in 12 years. The dollar also dropped to all-time lows against the euro. After reaching $1,001 on the New York Mercantile Exchange, gold for April delivery dropped slightly to $999.70 by midmorning Thursday.
Gold has been pushing up against the $1,000 an ounce mark for weeks, mainly because of the weaker dollar. Interest rate cuts -- and the prospect of more on the way -- have weakened the currency so much that foreign investors can buy dollar-based commodities like gold and oil more cheaply.
Investors have been expecting gold futures to rise to $1,000 as they watched the dollar spiral lower, said Scott Meyers, senior trading analyst with Pioneer Futures, a division of MF Global. Gold has been steadily creeping closer to the record after rising nearly 32 percent in 2007.
The dollar's decline and the boost in the price of oil price merely added the extra push. "We're getting a scenario where commodities are the place to be today," Meyers said. "With the weak dollar, it's hard to be against them." Meyers declined to speculate on how high gold could go, saying, "to pick a top is a foolish game to play at this juncture."
The Federal Reserve's meeting next week could provide more encouragement for gold prices since the Fed is widely believed to be considering cutting interest rates again. Another rate cut could reduce the dollar's value further, making gold an even better investment.
Oil Prices Set New Highs Above $110
Oil prices on Thursday hit a record high above $110 a barrel as investors fled the tumbling dollar that fell to new lows against the euro and a 12-year low versus the yen. Light, sweet crude for April delivery rose 78 cents to reach $110.70 in early afternoon European electronic trading on the New York Mercantile Exchange. On Wednesday, it had set a record trading high of $110.20 a barrel.
The greenback's decline has played a role in a surge in crude futures, which have hit record territory in 11 of the past 12 sessions, despite the fact that crude supplies have risen 10.2 percent since early January.
"The dollar will remain the dominant factor until the Fed meeting next Tuesday but oil will also have to balance with equities under the pressure of more credit hedge funds going bellyup," said Olivier Jakob of Petromatrix in Switzerland, referring to the U.S. Federal Reserve.
Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is weak. "Oil and other commodities have an intrinsic value so that to the extent that the U.S. dollar depreciates, (oil) becomes relatively cheaper in terms of other currencies, such as the euro," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "So you get an adjustment to compensate for that effect."
Oil prices initially fell Wednesday in New York trading after the U.S. Energy Department's Energy Information Administration, or EIA, said crude supplies rose 6.2 million barrels last week, more than three times the 1.6 million barrels forecast by analysts surveyed by Dow Jones Newswires. But buyers quickly returned to the market. "I think the weakness of the U.S. dollar was a key part of that," Moore said.
The EIA also reported that gasoline supplies rose 1.7 million barrels last week, well above the expected 300,000 barrel increase, and distillate supplies dropped 1.2 million barrels, less than the expected 2 million barrel decline.
It was the eighth increase in crude supplies in nine weeks, putting oil inventories back on a growth track after a one-week decline. Meanwhile, forecasters including the Energy Department, the International Energy Agency and OPEC have consistently reduced their demand growth predictions for this year.
Wednesday's EIA report offered more evidence demand is falling: Gasoline consumption fell 0.7 percent last week compared to the same week last year. Normally, gasoline consumption grows about 1.5 percent year-over-year, just to keep pace with population growth.
Many analysts argue that current oil prices can't be justified by the market's underlying supply and demand fundamentals. Yet evidence of weak demand amid growing supplies has not stopped oil prices from rising in the past, particularly when the dollar is falling. "Some investors are apparently viewing oil and other commodities as providing something of a hedge against U.S. dollar weakness and possibly inflation concerns as well," Moore said.
Gold futures hit $1,000 an ounce for the first time Thursday, pushed past the benchmark by the sinking dollar and record crude oil prices. The dollar fell below 100 yen during Asian trading Thursday, its weakest level against the Japanese currency in 12 years. The dollar also dropped to all-time lows against the euro. After reaching $1,001 on the New York Mercantile Exchange, gold for April delivery dropped slightly to $999.70 by midmorning Thursday.
Gold has been pushing up against the $1,000 an ounce mark for weeks, mainly because of the weaker dollar. Interest rate cuts -- and the prospect of more on the way -- have weakened the currency so much that foreign investors can buy dollar-based commodities like gold and oil more cheaply.
Investors have been expecting gold futures to rise to $1,000 as they watched the dollar spiral lower, said Scott Meyers, senior trading analyst with Pioneer Futures, a division of MF Global. Gold has been steadily creeping closer to the record after rising nearly 32 percent in 2007.
The dollar's decline and the boost in the price of oil price merely added the extra push. "We're getting a scenario where commodities are the place to be today," Meyers said. "With the weak dollar, it's hard to be against them." Meyers declined to speculate on how high gold could go, saying, "to pick a top is a foolish game to play at this juncture."
The Federal Reserve's meeting next week could provide more encouragement for gold prices since the Fed is widely believed to be considering cutting interest rates again. Another rate cut could reduce the dollar's value further, making gold an even better investment.
Oil Prices Set New Highs Above $110
Oil prices on Thursday hit a record high above $110 a barrel as investors fled the tumbling dollar that fell to new lows against the euro and a 12-year low versus the yen. Light, sweet crude for April delivery rose 78 cents to reach $110.70 in early afternoon European electronic trading on the New York Mercantile Exchange. On Wednesday, it had set a record trading high of $110.20 a barrel.
The greenback's decline has played a role in a surge in crude futures, which have hit record territory in 11 of the past 12 sessions, despite the fact that crude supplies have risen 10.2 percent since early January.
"The dollar will remain the dominant factor until the Fed meeting next Tuesday but oil will also have to balance with equities under the pressure of more credit hedge funds going bellyup," said Olivier Jakob of Petromatrix in Switzerland, referring to the U.S. Federal Reserve.
Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is weak. "Oil and other commodities have an intrinsic value so that to the extent that the U.S. dollar depreciates, (oil) becomes relatively cheaper in terms of other currencies, such as the euro," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "So you get an adjustment to compensate for that effect."
Oil prices initially fell Wednesday in New York trading after the U.S. Energy Department's Energy Information Administration, or EIA, said crude supplies rose 6.2 million barrels last week, more than three times the 1.6 million barrels forecast by analysts surveyed by Dow Jones Newswires. But buyers quickly returned to the market. "I think the weakness of the U.S. dollar was a key part of that," Moore said.
The EIA also reported that gasoline supplies rose 1.7 million barrels last week, well above the expected 300,000 barrel increase, and distillate supplies dropped 1.2 million barrels, less than the expected 2 million barrel decline.
It was the eighth increase in crude supplies in nine weeks, putting oil inventories back on a growth track after a one-week decline. Meanwhile, forecasters including the Energy Department, the International Energy Agency and OPEC have consistently reduced their demand growth predictions for this year.
Wednesday's EIA report offered more evidence demand is falling: Gasoline consumption fell 0.7 percent last week compared to the same week last year. Normally, gasoline consumption grows about 1.5 percent year-over-year, just to keep pace with population growth.
Many analysts argue that current oil prices can't be justified by the market's underlying supply and demand fundamentals. Yet evidence of weak demand amid growing supplies has not stopped oil prices from rising in the past, particularly when the dollar is falling. "Some investors are apparently viewing oil and other commodities as providing something of a hedge against U.S. dollar weakness and possibly inflation concerns as well," Moore said.
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