The turmoil in Russia that shook the stock market this week also helped push down the prices of oil and gold, two commodities that already were trading well below where they were a year ago.
Part of the reason was fear that Russia could sell two things it has in relative abundance -- gold and oil -- for something it has very little of -- hard currency. But analysts who follow the two commodities said the underlying trends that have pushed down prices for some time probably had a greater effect than recent fears about Russia.
Gold prices yesterday fell to a 19-year low, with gold for December delivery losing $2.10 to $274.60 an ounce on the New York Mercantile Exchange's Commodity Exchange. The price of the metal has fallen almost 4 percent this week. A year ago, gold sold for about $325 an ounce, and in early 1996 prices were more than $400.
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"If it was just Russia, it wouldn't be that big a deal, but because it's not only Russia, but also Japan and Southeast Asia, it's causing a lot of people to wonder what it means for the global economy as a whole," said Ted Kempf, senior research analyst at CPM Group, a New York precious metals and commodities consulting company.
Crude oil prices recovered somewhat yesterday from their slide of Wednesday and Thursday, with light, sweet crude oil for October delivery adding 27 cents to close at $13.50 a barrel in trading on the New York Mercantile Exchange. A year ago oil was trading for almost $20 a barrel. "Prices have been heading down since the beginning of this year," said oil analyst Ann-Louise Hittle of Cambridge Energy Research Associates in Massachusetts. Major factors include reduced demand from financially strapped Asian nations and increased supply from oil-producing countries in need of cash.
Worries about Russia likely had a psychological effect on the oil market Thursday, she said, but by yesterday most traders realized that Russian export levels are unlikely to increase. Russia has long followed a policy of selling as much oil as it can produce, she pointed out.
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Looking forward, Michael Rothman, senior energy analyst at Merrill Lynch & Co. in New York, said it's unlikely that oil prices will undergo a sustained rally anytime soon because there's no evidence worldwide supply will decrease. "I think oil prices in the next few months are likely to languish in their current range," he said, and possibly drop near the historic low of $12 a barrel.
Share this articleShareSince the United States is the world's biggest oil consumer and a net importer, the prices "are almost tantamount to a tax cut," he said.
Traditionally, when stock prices have plunged, gold has been the safe retreat for investors. That's not what happened this week.
For the past two years gold has been a dismal investment as investors grabbed instead for soaring stocks, said George Gero, senior vice president for investments at Prudential Securities Inc. in New York.
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Gold is usually viewed as a hedge against inflation, he said, and the U.S. economy has been under little inflationary pressure.
"We've had stable interest rates, declining energy prices and a stable economy," Gero said.
Prices were knocked lower this year by economic troubles in Asia, "one of the traditional large buyers of gold," Gero said. People just didn't have the cash to buy.
"You've now removed a large part of the world that would traditionally buy gold in times of trouble," he said. Although demand was down, producers continued to sell, he said.
"The Russian turmoil, had it been any other country but Russia, would have resulted in a gold rally," Gero said. "Russians are unable to turn to gold . . . because their currency is essentially worthless. Today, to buy gold, you need a Western currency, a hard currency." CAPTION: OIL PRICES SLACKEN (This graphic was not available)
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