Oil and gold charged to new highs on Monday as investors sought safety from a crumbling dollar and soft equity markets as weak US economic data and inflation worries keep money flowing to commodities. Crude oil prices set new records in New York and London, and gold edged closer to $1,000 an ounce, setting a record high for the fourth straight day.
FROM AN OIL PERSPECTIVE, THIS RALLY LIKE THAT ACROSS THE COMMODITY SECTOR REMAINS RAMPANT AS FUND INVESTORS AND SPECULATORS CONTINUE TO SEEK SAFER HAVENS FROM AN AILING EQUITY MARKET: Treasury bond prices extended losses and the dollar pared losses against the euro and the yen after a slightly firmer-than-expected US manufacturing report.
European shares closed down for a fourth day and US stocks traded little changed after midday as data did little to dispel concern over the potential for a US recession.
"From an oil perspective, this rally like that across the commodity sector remains rampant as fund investors and speculators continue to seek safer havens from an ailing equity market," said Robert Laughlin, an analyst at broker MF Global.
Crude speculators on the New York Mercantile Exchange have increased their net long positions to the highest in seven weeks, according to data from the Commodity Futures Trading Commission released last week.
US pared early losses as a new high in oil prices prompted investors to snatch up shares in the energy sector. Financial shares weakened as mortgage banker Thornburg said it is suffering cash shortages and some speculated it may need a bankruptcy action. Thornburg's woes reminded investors of the continuing fallout from a global credit crunch.
The Dow Jones industrial average was down 36.31 points, or 0.30 percent, at 12,230.08. Banks drove European shares lower, dragged down by British mortgage lender HBOS, with the bank sector index off 1.65 percent. HSBC shares fell more than 1 percent before rising on last year's 10 percent profit gain.
The FTSEurofirst 300 index of major European companies closed down 1.36 percent at 1,297.43, while MSCI's main world equity index fell 1.07 percent to hit a one-week low. Earlier, Japanese stocks fell more than 4 percent, with the Nikkei hitting a nearly six-week closing low as exporters, such as Honda Motor Corp, were battered by a strong yen amid growing US recession worries. Hong Kong stocks, which tracked losses in overseas equities, also fell over US economic weakness. The benchmark Nikkei shed 610.84 points to end at 12,992.18, while the benchmark Hang Seng Index in Hong Kong ended down 3.07 percent at 23,584.97. Economic data did not play a big role. US manufacturing data showed factory activity contracted last month, although not by as much as feared, which helped both US and European equities recoup some losses.
The Institute for Supply Management's index of national factory activity fell to 48.3 in February from 50.7 in January, slightly above economists' expectations for a reading of 48.0. "The market is absolutely desperate to gauge exactly how quickly the US economy is slowing down and what is the potential threat of inflation," said Henk Potts, a strategist at Barclays Stock Brokers in London.
Expectations the Organisation of Petroleum Exporting Countries will not change oil output when it meets this week in Vienna underpinned the oil market.
A recent fall in the US dollar to record lows against euro has helped draw investment into oil and other commodities, and geopolitical tensions kept bullish momentum intact.
Crude oil is priced in US dollars so when the US currency declines oil prices often rise to reflect that. The market drew support as oil producer Venezuela and Ecuador sent troops to their borders with Colombia after it bombed rebels inside Ecuador.
On the New York Mercantile Exchange, April crude was up 1.5 percent at $103.39 a barrel, after a reaching a new record $103.95. The dollar rebounded from lifetime lows against the euro and a basket major currencies as investors took profits on relief the ISM data was not as bad as expected. The US Treasury market fell on the ISM report and was also unsettled by remarks from Philadelphia Federal Reserve Bank President Charles Plosser suggesting that the Fed should be ready to raise rates when financial conditions stabilise.
Gold, which has gained about 18 percent so far this year, rose closer to the $1,000 mark. Investors are shifting some of their money into the precious metal amid expectations of more US interest rate cuts, volatile stock markets and fears of rising energy costs.
Silver jumped above $20 an ounce for the first time since November 1980, while platinum and palladium held near highs. Spot gold jumped as high as $989.30 an ounce and was quoted at 983.70/984.50 at 1530 GMT, up from $973.30/973.75 in New York late on Friday.
"As long as the dollar remains under pressure, I would expect that gold prices would continue to rise." said Michael Widmer, a metals analyst at Lehman Brothers. At midday, the euro traded flat at $1.5192, helping to pull back the New York Board of Trade's dollar index from a historic low of 73.354.
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