Early this afternoon, the CME was forced to temporarily halt trading in crude oil and gasoline futures due to the prices hitting “limit down.” In a continuation of a trend that began at the end of April, the entire commodity complex is under pressure. As I look at the Bloomberg, silver is down nearly 8%, and is trading at a ratio of 42.3 relative to gold (it takes 2.6 pounds of silver to buy 1 ounce of gold today). Considering that the actual ratio of these metals in the earth is estimated to be between 10 and 16 times, mean reversion could be quite painful for the holders of the yellow stuff.
Things aren’t much better in the agriculture space either. Unless you are long rough rice (+0.9%), you are shedding a couple hundred basis points in wheat, soybeans, oats, and corn.
Part of the cause is the rise in the US Dollar that began in May. Part of the cause is a growing belief that global economic growth is slowing. Part of the cause was the epic “miss” in estimated crude oil inventories — which came in well above consensus.
Meanwhile… the VIX (fear index) has quietly gained nearly 18% since the 1st of May.
These are not the kind of stats that breed confidence. Hopefully this volatility won’t trip any Algo’s and make the afternoon all the more interesting!