The Wall Street Journal-20080111-Oil- Gold Get Bernanke Boost- Hope for Rate Cuts Helps to Ease Fears Undermining Crude
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Oil, Gold Get Bernanke Boost; Hope for Rate Cuts Helps to Ease Fears Undermining Crude
Crude-oil and gold futures got a boost after Federal Reserve Chairman Ben Bernanke signaled support for more, possibly aggressive, interest-rate cuts to support economic growth.
But growing concerns of an imminent economic slowdown are continuing to push crude lower, while recession fears may push gold the opposite direction, to new nominal highs.
After the Fed chief's remarks, light, sweet crude for February delivery reversed heavier losses earlier in the day to close down $1.96, or 2%, at $93.71 on the New York Mercantile Exchange. It had fallen as low as $93.25 after more economists began warning of spreading economic woes. Goldman Sachs Group Inc. said early yesterday that Japan is at risk of recession; that call came a day after other Goldman economists warned the U.S. was slipping into recession.
Gold futures settled at a record on the Comex division of Nymex for the third session in a row. Nearby January gold added $12.20 an ounce at $891.70.
The prospect of lower interest rates could push down the U.S. dollar further relative to other currencies, as global investors move some money invested in U.S. debt abroad. Gold is seen as an alternative store of value when the dollar is depreciating, and thus tends to rise when the Fed eases rates.
Mr. Bernanke's comments "inadvertently helped gold continue on its march to $900," said George Gero, vice president with RBC Capital Markets.
Meanwhile, a recession "carries significant implications for the growth of oil demand," said Antoine Halff, an energy research analyst with Newedge USA LLC, in an interview. The U.S. accounts for nearly 25% of the world's oil demand, and analysts expect a U.S. slowdown will also have ripple effects across the world, especially in China, the biggest exporter to the U.S. and a main contributor to the world's growing oil consumption.
Mr. Bernanke said the economy would most likely avoid a recession this year but still undergo a period of slow growth. He opened the door to large interest-rate reductions, noting that officials "stand ready to take substantive additional action as needed to support growth."
The Fed chairman also pointed out the role of oil prices in inflation. Higher oil prices are "lifting overall consumer prices and probably putting some upward pressure on core inflation measures as well," he said.
Daniel Flynn, an analyst with Alaron Trading Corp. in Chicago, said crude prices could drop another $10 to $12 in the near term before traders have the chance, closer to summer driving season when gasoline demand increases, to see "if we take another leg up above $100 a barrel."
In other commodity markets:
COTTON: Futures declined sharply, pressured by speculative sales and bearish options trades. March cotton on ICE Futures U.S. dropped 2.06 cents to 66.96 cents a pound.
RICE: Prices hit records on bullish weekly export shipments data from the Agriculture Department. Chicago Board of Trade March rice increased by 10.50 cents to settle at $14.6050 per hundredweight.
