Spillover Effect!
What do Cotton, Gold, Crude Oil, Corn, and Cocoa all have in common? Well, in early trade this morning, these five, along with nearly every other U.S. traded commodity future, are trading lower, as fears of an economic slowdown have traders liquidating commodity futures across the board as they attempt to increase liquidity. This morning’s action in the commodity markets is a good lesson for traders on how interrelated the global markets really are, where the fundamentals that may be affecting Cocoa or Wheat can take a backseat to overriding concerns about liquidity and the forced liquidation of positions by speculators in normally uncorrelated markets to cover losses elsewhere. With many major European Stock markets down over 2% so far today and S&P futures trading at lows last seen in March, it will be interesting to see how commodities react once the day session begins. Should the stock indexes make a recovery, will commodities follow? Stay tuned……
Looking at the daily chart for December Gold, we notice that even a market once thought of as a vehicle for “safe haven” buying cannot stage a rally. Prices are lower in early trade, hovering just above recent lows at $668.80, with a stronger U.S. Dollar against the Euro not helping the cause of Gold bulls. Prices have now fallen below the 50-day moving average, which may trigger fresh selling by momentum traders. The $668.80 level will be widely watched, and a close below this level could signal a test of the $650.00 before major support is seen. Resistance is found at the 20-day moving average of $681.80. In the early going, December Gold is trading at $672.00, down $7.70.
