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Commodities: Dollar strength hits commodities

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Date: Thursday 20 Mar 2008

LONDON (ShareCast) - The price of gold registered its largest single-day fall in almost two years, as the US dollar continued its recovery on hopes that the Federal Reserve will turn its attention to fighting inflation after its recent spate of interest rate cuts.

Gold for April delivery tumbled almost 6% to $945.30, a far cry from its peak of $1,034 just two days earlier. The metal is priced in US dollars and therefore usually suffers when the greenback prospers, and it is also bought as a hedge against inflation; consequently, the Fed’s publicly voiced concerns about inflation and its decision not to cut interest rates by a full point are seen as bearish omens for gold.

Copper, palladium, platinum and silver also backtracked, as commodity prices look set for a period of profit-taking after their recent strong run.

The price of crude oil also hit the skids, with crude for April delivery shedding almost $5 – its largest daily fall since 1991 – to close at $104.48 in New York trade. Earlier in the day it had slipped below $103 as traders banked profits.

Crude oil inventories rose less than expected, by 200,000 barrels to 311.8m barrels in the week to 14 March, but this was not enough to turn the tide of sentiment.