Crude oil prices briefly hit the $100-a-barrel mark and gold prices jumped to an all-time high as investors poured money into commodities on Wednesday amid deepening fears about the weakness of the US dollar reports the Financial Times.
The oil price rally soured the first stock trading day of the year, with the Dow Jones Industrial Average closing 1.7 per cent lower, its worst start since a slide of 1.9 per cent on the first day of trading in 1983.
The dollar fell against the Euro and the yen after a report that showed the US manufacturing sector slumping to its lowest levels in five years during December. Investors bet that the Federal Reserve would be forced to lower interest rates in response to economic weakness, potentially increasing the downward pressure on the dollar.
The $100-a-barrel level was reached as the result of a single trade by two independent traders – known as locals – at the Nymex floor, industry sources said.
Before the trade, oil prices were at $99.53 a barrel. In spite of the controversy about the single trade, crude oil closed up $3.64 at $99.62 a barrel in New York. The White House said President George W. Bush would not tap the Strategic Petroleum Reserve and was focused on other ways to boost US oil supplies.
The Institute for Supply Management said that its manufacturing index for December fell to 47.7, its lowest level since April 2003 and well below 50.8 in November. A reading below 50 indicates a contraction in activity and has historically served as a harbinger of recession.
TJ Marta, fixed income strategist at RBC Capital Markets in New York, said: “A further decline in the overall index below 45 would be consistent with the recessions of 1990-91 and 2001.”
Minutes from the Fed’s meeting in December, released Wednesday, revealed that policymakers “agreed on the need to remain exceptionally alert to economic and financial developments and their effects on the outlook”. The minutes said “members would be prepared to adjust the stance of monetary policy if prospects for economic growth or inflation were to worsen”.
Read it here: Dollar fear sparks rush to Oil and Gold