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Commodities rout: evening update

So by now, I'm sure most of you have digested much of the news surrounding this week's commodities rout.

What started out as a noteworthy plunge in silver, helped along by an 84% increase in margin requirements over the past two weeks, quickly spread across the commodities complex. From gold and crude oil to natural gas and heating oil, few were left unscathed.

Here's a quick summary of the day's events from Bloomberg:

"
Commodities plunged the most since 2009, led by oil and silver, and stocks posted the biggest three-day drop since March as selling of energy futures drove down equities. The dollar strengthened and Treasuries jumped.

The Standard & Poor’s GSCI index of 24 commodities sank 6.5 percent at 4:32 p.m. in New York and has lost 9.9 percent this week. Oil tumbled 8.6 percent, the most in two years, to $99.80 a barrel. Silver dropped 8 percent, extending the biggest four- day slump since 1983 to 25 percent."

The article's quoted source went on to describe the selling as a "classic liquidation move in a crowded trade". Indeed, I've seen a fair bit of talk suggesting that margin increases in silver and the accompanying plunge led to forced selling of other assets, including stocks.

I posted this Finviz 1 week relative performance chart of commodities on Chart.ly earlier tonight.


As you'll see, orange juice and 30 year Treasury bonds held their own during this recent decline. Most of the other commodities were not as fortunate, with silver and crude oil leading the declines so far this week.

So far, we're hearing a lot to suggest that this is the start of a needed correction in an overheated commodities sector, rather than a harbinger of a longer-term bear market. We'll keep our eyes peeled and focused on the futures complex in the weeks ahead.

Related articles and posts.

1. Flash crash commodities edition with Greg Simmons & Co. - MissTrade.

2. What does Jim Rogers think of the silver crash? - Credit Writedowns.

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