Commodities Stuck in Rut; Gold Falls to 20-Year Low

Despite the still-strong U.S. economy and more signs of a pickup in Japan, Mexico and other key economies, commodity prices overall remain stuck in a rut--good news if you want inflation to stay subdued, but perhaps bad news for stocks of commodity producers.

On Wednesday, crude oil prices fell more than 3%, the biggest drop in a month, after an unexpectedly large gain in inventories signaled that U.S. refiners have ample supply to make gasoline for the summer driving season.

Crude oil supplies last week rose 1.3%, the biggest gain in three months, according to the American Petroleum Institute. Gasoline inventories were almost 3% higher than a year earlier.

Refiners “have more product than they know what to do with,” said Michael Geoghan, a trader at ABN Amro Inc. in New York.

Near-term crude oil futures in New York slid 61 cents to $17.94 a barrel on Wednesday.

After soaring early in the year as major oil exporters cut production, crude has mostly traded between $17 and $19 a barrel since late April.

Likewise, the Commodity Research Bureau/Bridge index of 17 key commodities, down 0.6% to 190.33 on Wednesday, has seesawed between 185 and 193 since mid-March--making no net progress. The stall in commodities across the board is adding to downward pressure on gold, the classic inflation hedge.

On Wednesday, near-term gold futures in New York slid $1 to $259.10 an ounce, a 20-year low.

Gold has been hammered largely by worries that more nations will sell gold reserves to pay bills. Britain is planning a large sale, and on Wednesday the market was hit by rumors that Russia will dump gold as well.

“I believe that gold is heading to a truly stupid price,” said Leonard Kaplan, chief bullion dealer at LFG Bullion Services in Chicago.

“The only way gold is going to turn around is if some of these proposed government sales don’t occur,” Kaplan said.