A months-long rally in the prices of basic goods has shown cracks in recent weeks, pressured by a barrage of economic data confirming that $4-a-gallon gasoline and soaring food prices are hurting businesses and straining consumers' budgets. That lack of confidence was pivotal in spurring a hectic retreat by investors who had bought commoditiesparticularly silver and oilas a hedge against a steadily weakening dollar. The greenback abruptly changed course shortly before the U.S. trading day began, when European Central Bank President Jean-Claude Trichet failed to invoke the word "vigilance" when speaking about inflation, denting expectations for quick interest-rate increases that would enhance the advantage of holding the euro over other major currencies.
By midafternoon, the dollar had jumped nearly 2% against the euro, and oil prices had closed below $100 a barrel for the first time since March 16. Silver futures settled down 8%, at $36.240 per troy ounce, and off 25% since Friday. The strengthening dollar and sliding oil prices acted as a signal to abandon metals, grains and other commodities where concerns about rising prices and flagging demand also are on the rise. Most markets saw their first big drop Thursday morning from the twin hits of Mr. Trichet's comments and a U.S. Labor Department report showing claims for new unemployment benefits surging to 474,000, the most since August. Separately, manufacturing orders in Germany showed an unexpected 4% drop.
Commodities markets already were on edge due to this week's collapse in silver prices, as well as an array of indicators showing flagging consumption for increasingly costly raw goods. The arrival of $4-a-gallon retail gasoline prices across parts of the U.S. was seen as a potential turning point for the economy. Meanwhile, the U.S. Department of Agriculture reported weekly grain-export sales Thursday that were "poor across the board" as consumers balk at high prices, said Don Roose, president of U.S. Commodities in Des Moines, Iowa.
Copper prices dropped below $4 a pound for the first time this year, and gold also fell, with the gold contract for May delivery settling down 2.2% at $1,480.90 per troy ounce. Cotton fell 3.1%, while corn dropped 3% and natural gas sank 8.2%. "There's been a growing, nagging feeling about how well, or not well, the economy is doing. There are a lot of little dots getting connected," said John Kilduff, founding partner of hedge fund Again Capital. "This time around, $4-a-gallon gasoline is clearly doing damage to the consumer psyche and to the economy."
MORE
