Commodities drop sharply around the world as markets sentiments are deeply pressured by risk of contagion effect from Dubai debt payment delay request which could trigger second wave in the credit crisis. Gold extended the decline from record high of 1195 and falls sharply to as low as 1130 level before recovering. Crude oil’s selloff also accelerates after taking out 75.57 support and reaches as low as 72.39 so far. Global stocks are under much pressure with Nikkei closed -3.22% low at 9081. European stocks are also sharply lower with FTSE 100 and DAX dropping more than -1% in initial trading.
Dubai World, the government investor company, sought to delay debt repayment until at least May. The news was a shock to confidence in the region and triggered much doubt in governmental support. More importantly, this will be a troubling development for international banks which are increasing dependent on Middle East markets as source of businesses. It’s believed that UK’s RBS, HSBC, Barclays, Lloyds and Stand Chartered are having large exposures in case of defaults.
Gold’s selloff today is a significant indication of short term profit taking after the multi-month power rally to new record high of 1195. 1200 level should be an important psychological level in near term and some correction should be seen to keep gold below 1200 for a while, with some risks of a break of 1100 level. But 1072 should provide strong support to contain the pull back.
Crude oil’s outlook is noticeably worse and 75.57 level will become a key near term resistance level to limit recovery. The choppy fall from 82.00 level would likely extend further towards 70 in near term at least. Meanwhile, deeper decline towards 60 could be seen if sell off in global stocks persist next week.