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Commodities Fall on Stronger Dollar: Will oil and gold stay down?

Posted March 21, 2008

"Many speculative investors seem to be liquidating their assests and taking profits, as fundamentals do not support record high commodities prices." — Jason Simpkins

by Jason Simpkins, Money Morning

Baltimore – (TFN):  Commodities, which have been some of the most profitable investments of the past 18 months, tumbled yesterday (Thursday). Oil and gold were just a few of the raw materials whose prices plummeted on speculation that demand will slacken and the dollar will rebound in coming months.

Crude oil fell below $100 a barrel for the first time in two weeks yesterday, extending heavy losses sustained in the previous session. Oil hit a record high $111.80 a barrel Monday, but dropped nearly $5 on Wednesday.

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A report from the energy department, which indicated demand for oil may be waning amid a global economic downturn, was at least partly responsible for the decline. The Energy Information Administration’s weekly inventory report said Wednesday that overall consumption of oil and its products fell 3.2% over the last four weeks compared with the same period last year.

Also, many speculative investors seem to be liquidating their assests and taking profits, as fundamentals do not support record high commodities prices.

"Commodity players seem to be coming round to the notion that the deterioration in the U.S. macro picture cannot be ignored on the pretext that commodities are a ‘weak dollar play’ or an ‘inflation hedge,’ and thus immune from downward pressure," MF Global Ltd. (MF: NYSE) analyst Edward Meir, said in a research note. Read on to learn whether oil and gold will stay down or if a slide in the dollar will lead to higher commodities prices.

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