SINGAPORE: Oil and gold fell on Monday, dipping by as much as two per cent after news of Osama bin Laden's death stripped some of the risk premium that has been underpinning commodities prices.
Silver tumbled 10 per cent, its steepest fall since late 2008, hit by a recovery in the dollar, increased margins for futures trading and a technical overhang after a 170 per cent rally over the last 12 months to a record high last week.
In Washington, U.S. President Barack Obama said al Qaeda’s elusive leader, whom authorities had sought in vain since his late-2001 disappearance in Afghanistan, was killed in Pakistan on Sunday and his body recovered.
The news could reduce the risk premium swelling prices because of war in Libya and unrest in the Middle East and North Africa, although Obama did urge vigilance against the risk of anti-American violence.
“If Osama is taken out, you are going to see risk premium being wiped out from the market. It is going to bring down oil prices by $5 to $10 if people warrant that risk premium is important,” said Jonathan Barratt, managing director of Commodity Broking Services, based in Sydney.
“Oil markets are likely to be the most volatile given their higher sensitivity to the tug of war between lower risk overall and the possibility of isolated disturbances in some parts of the Middle East and central Asia,” said Mohamed El-Erian, chief executive and co-chief investment officer of PIMCO, the world's largest bond fund manager.
Oil was already down before the news about Bin Laden, after NATO air strikes over the weekend killed one of Libyan leader Muammar Gaddafi's sons and after industry sources said that Saudi Arabia raised output in April.
Gaddafi’s youngest son and three grandchildren were killed in a NATO air strike, the Libyan government said on Sunday.
Britain said that while it was not targeting the leader, it was homing in on the regime's military machine.
Spot gold prices fell a little over $5 to $1,540.39 an ounce immediately after the reports of bin Laden's death, having earlier touched an all-time high of $1,575.79. By 0502 GMT, gold had recovered to $1,549.56.
Spot silver stood at $44.64 an ounce, down 6.6 per cent on the day, while COMEX silver for July delivery <SIcv1> traded at $44.41 an ounce versus $48.599 on Friday. Prices dipped as low as $42.80 for spot and $42.20 in futures markets.
“Silver is an accident waiting to happen, and it seems like it has incurred ‘bumper’ damage today,” said David Thurtell, an analyst at Citigroup.
Markets across large parts of Asia and much of Europe were closed for May Day and Labour day holidays, reducing the number of market participants and making for volatile trade.
Chicago Board of Trade front-month May corn <Cc1>, which is linked to crude prices though its use in ethanol, fell 1.8 per cent to $7.40-1/2 a bushel, leading losses for wheat <Wc1>, down 1.01 per cent to 7.61-1/2 a bushel.
Further pressure on the corn market came from forecasts of improved weather in the US Midwest that brightened hopes for this year's delayed plantings. The dollar had strengthened by nearly 0.3 per cent earlier on Monday following last week's slide, deterring investors from piling into commodities this week.
Last week's Federal Reserve reassurance that economic stimulus would continue had hammered the dollar to a three-year low, boosting US crude to above $114 on Friday, the highest since September 2008, and gold to a record earlier on Monday.
But markets' swift fall in response to Monday's news of bin Laden's death could turn out to be brief, one analyst said.
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