Commodities Take a Hit as Stronger US Dollar, Bearish Fundamentals Weigh on Demand

Commodities took a hit on Tuesday, led by a steep drop in crude oil prices. A sharp rise in the U.S. Dollar was among several factors driving oil prices lower, but it was the main reason for the plunge in gold prices. Natural gas prices also retreated on weather-related concerns.

The dollar index rose against a basket of most major currencies on Tuesday, surpassing a two-week high, while yields on U.S. Treasuries slipped as U.S. Federal Reserve Chair Jerome Powell told Congress inflation will not get out of hand.

The dollar index reversed course from Monday when it dipped but hovered below four-month highs, as investors sought safe havens. Contributing to market caution was a potential currency crisis in Turkey and a third wave of COVID-19 pandemic in Europe. Germany is extending its lockdown and urging citizens to stay at home over the Easter holidays.

Crude Oil

Crude oil prices plunged on Tuesday, pressured by a sharp rise in the U.S. Dollar, concerns over lockdowns in Europe and an unexpected rise in U.S. fuel inventories.

U.S. crude oil stocks rose and gasoline inventories fell in the most recent week, according to trading sources citing data from industry group the American Petroleum Institute.

Crude inventories jumped by 2.9 million barrels in the week to March 19, compared with analysts’ expectations in a Reuters’ poll for a decline of about 300,000 barrels, sources said.

Gasoline stocks fell by 3.7 million barrels, compared with expectations for a build of 1.2 million barrels.

Distillate fuel inventories, which include diesel and heating oil, rose by about 246,000 barrels, versus expectations for a draw of 100,000 barrels.

Gold

Gold prices fell on Tuesday as the dollar’s rally to a two-week peak offset a dip in U.S. Treasury yields. The price action suggests safe-haven buying is behind the moves with the U.S. Dollar rising along with Treasury bonds. Once again, gold was not in the mixed because contrary to belief in the brokerage community, gold is not considered a true safe-haven asset.

The rise in the dollar offset foreign demand for dollar-denominated gold. Some gold bulls are trying to build a case for buying gold due to the Fed’s signaling of low-interest rates and the likelihood for further fiscal stimulus from a potential resurgence in COVID-19 cases.

Natural Gas

Natural gas futures retreated on Tuesday, ending hopes of a three-day winning streak. The bulls have been helped this week by increasing liquefied natural gas (LNG), but that news wasn’t enough to overcome continued bearish weather forecasts that pointed toward weak demand.

According to NatGasWeather, both the European and domestic weather models on Tuesday showed “emphatically bearish” conditions in terms of domestic natural gas demand for the remainder of March and into April.

For a look at all of today’s economic events, check out our economic calendar.