IBT: Gold and silver prices hurt by oil reserve release
Precious metal prices fell yesterday following the news of an agreement between the US and 27 other countries to release 60 million barrels of oil from strategic petroleum reserves. Crude oil prices fell to a four-month low on the news, with ICE Brent crude losing 6.1% intraday – settling at $107.26 a barrel, with Nymex WTI crude down 4.6% to settle at $91.02 a barrel.
Ostensibly, this move has been made in order to offset supply disruptions caused by the war in Libya. Half of the 60 million barrels will come from the US, 30% from Europe and 20% from Asian countries. This is only the third time that International Energy Agency members have agreed to such an oil reserve release; the first time was in the wake of Iraq’s invasion of Kuwait in 1990, and the second following Hurricane Katrina in 2005.
Many are questioning the timing of this move, coming as it does months after the recent peak on crude oil prices. It also comes at a time when the US economy is slowing, and President Obama’s poll numbers are moving lower. With the start of the 2012 presidential election campaign not far off, Obama can ill-afford “high gas prices” to become an election issue.
Ultimately, however, the price of oil in dollar terms is as much a measure of the value of the dollar as it is a measure of the price of oil. It should come as no surprise to anyone that oil prices in dollar terms have risen so much over the last century, when the dollar has lost 95% of its purchasing power since 1913 (the year the Federal Reserve Act was passed by Congress). Pricing crude oil in goldgrams provides an interesting contrast with the never-ending price appreciation of oil in terms of paper currency.
The big drop in oil prices resulted in algorithm selling across the commodity complex, leading to losses in gold and even sharper drops in silver, platinum and palladium. Silver for July delivery traded at the New York Comex lost $1.737 (4.7%) to settle at $35.002 per troy ounce. Gold prices held up slightly better than its more speculative brother silver, with June Comex gold down $32.80 (2.1%), settling at $1,520.10 per troy ounce. The most actively traded platinum and palladium contracts lost 3.3% and 3.5% respectively.
Precious metals were also pushed lower by diminishing inflation expectations on the part of investors, following the US Federal Reserve’s confirmation that it will end its current quantitative easing programme (QE2) on June 30.
