Transcripts

The Commodities Crisis Continues

SUSIE GHARIB: Another big sell-off today for oil, gold and silver, wrapping up a dramatic week for commodities. Gold futures, which peaked on Tuesday at $1,017 an ounce, have since plunged almost $100 or 9.5 percent; silver plummeted 18.5 percent this week. And oil prices, which reached a record of nearly $112 a barrel on Monday, now stand at $101.84. Scott Gurvey takes a closer look at what's behind this sudden drop in commodity prices.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Prices for commodities from oil to gold to grain continued to fall today as speculators reassessed their view of the markets. Many had used commodities as an inflation hedge as the Federal Reserve rapidly cut interest rates. In the wake of this week's policy statement from the Fed, many believe the current round of rate cuts is nearing its end. The focus is now shifting to worldwide economic growth concerns. A sluggish global economy would dampen demand for commodities. George Gero of RBC Capital Markets says speculators are afraid of getting caught in a commodities bubble and are trying to reduce the amount of leverage in their portfolios.

GEORGE GERO, VP, GLOBAL FUTURES SALES, RBC CAPITAL MARKETS: You have these hedge funds that exist overseas in Asia and they exist in Europe and they all need to replenish their cash. And they do that by selling off futures contracts, which are easy, quick to sell, even though the price costs them in the sell-off. Because they can't sell their mortgages, they're selling futures contracts.

GURVEY: But according to James Steel of HSBC, there is another big factor in the recent run-up of commodity prices.

JAMES STEEL, METALS ANALYST, HSBC: Ultimately, the key impact on commodity prices, particularly precious metals prices, is going to be the value of the dollar. That's because commodities are produced in -- by- and-large, in non-dollar economies and sold outside, so the level -- but they're traded in dollars, so the level that the dollar is worth has an impact on the purchasing power of commodities abroad.

GURVEY: The Fed's recent actions to contain the credit crisis are being applauded on Wall Street, with analysts reporting the central bank's wide-ranging moves have a good chance of being successful. That has triggered a dollar rally in the last few trading sessions and a stronger dollar means lower commodity prices. Is this the top for commodities? Like most, George Gero doesn't know.

GERO: We can't tell. I cannot read tea leaves. I cannot tell you if this will continue. I can only say that, for the moment, we seem to have reached a temporary change in the economic environment.

GURVEY: Those worried more about the economy's health than inflation got further support today from the Conference Board. It released its leading indicators report, showing the fifth straight monthly decline. The business group says the U.S. economy may be grinding to a halt. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.