Recession Fears Rock Commodities
Renewed worries of a worldwide recession hammered commodity markets this week. Global markets focused on increasing chances that Greece would default on its debt payment, an event that could wreak havoc on the European banking system. The U.S. - European economic relationship is the most integrated on earth. About one-half of the world's GDP is created by U.S. and Euro Zone. Concerns about Europe's economy, combined with a statement by the U.S. Federal Reserve that our economy had "significant downside risk," caused a wide-ranging selloff across many asset classes.
Sharp losses were seen in global equities, precious metals, crude oil, and grains. By Friday, the S&P 500 had dropped to 1120 (-8%), crude oil had slid to $77.55 per barrel (-12%), and soybeans had sunk as low as $12.50 (-8%).
Metals such as copper, platinum, and silver which are linked to industrial production were hit hardest of all. During this week, silver stumbled to a seven-month low at $30.40 per ounce (-25%), copper collapsed to a 13-month low at $3.22 (-18%), and platinum plummeted to a one-year low at $1602 (-12%).
Gold fell sharply as well, in a move that some market participants described as profit taking by hedge funds who had owned the metal for months or years. By midday Friday, gold was trading near $1630, down 15% from its all-time high at $1920 earlier this month.
The only markets that saw significant buying this week were U.S. Treasury bonds and the U.S. Dollar, both of which are perceived as "safe havens" in the global economy. Bonds were further bolstered by a Federal Reserve announcement this week that the government would continue to buy long-term treasury bonds in its effort to bring down interest rates. The move was intended to lower borrowing costs for businesses and home buyers, and thereby bolster the economy. However, many traders saw the move as a sign of desperation, causing this week's panic selling.
Treasury bond futures, traded at the Chicago Board of Trade, are among the most popular and actively traded futures contracts in the world. At their current price, the 30-year U.S. Treasury bond yields approximately 2.99% interest.
Although most investors see downward markets as a bad event, this week's downswing was a benefit for those investors looking to buy stocks and precious metals at a lower prices, as well as consumers who have been hurt recently by high food and fuel prices.
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