COMEX gold futures fall from $1195 record as commodity prices slump on Dubai debt default fears

Commodities prices slumped after Dubai sought to defer some debt payments, rattling investors and spurring a dollar rally. Gold for immediate delivery fell to $1,177.63 after touching a record $1,195.13 on 26 Nov 2009. Gold prices have advanced 33% in 2009, the best performance since 1979. Spot silver prices sank to $18.30 per ounce. NYMEX crude oil prices fell to $72.39 before paring losses. COMEX copper futures for Mar 2009 delivery fell to $3.1255 per pound. Nickel, zinc, tin and lead declined on the London Metal Exchange. Wheat prices fell $5.6975 a bushel on CBOT.

Commodities have gained 19% this year amid the deepest global recession since World War II. Copper and lead have more than doubled and oil prices are up 71% as Chinese demand expanded and producers curbed output. Dubai World's move to defer some payments on $59 billion of liabilities has raised debt default concerns. The global credit crisis has led to credit losses and writedowns of more than $1.7 trillion since June 2007, tipping the world into recession.

- It looks like gold prices, or rather, commodities prices in general, seem to be in correlation with the general equities markets these days. Just another whiff of the global credit crisis and global investors quickly stampede for the exits. As the Times Online reports :

The three foreign banks with the biggest exposure to the United Arab Emirates are British - Standard Chartered, SBC and Barclays. Standard Chartered, thought to have invested more than any other UK bank in the Middle East, dropped almost 6%, while HSBC lost 5%. "This is an important reminder that the credit crisis is forgotten but not gone," said Robert Rennie, strategist at Westpac Global Markets Group.

That's right. The global credit crisis may have been forgotten by most of the world but it certainly has not gone away. The looming Dubai debt default issue might just be the trigger event, a clear signal, that the contrarian community had been waiting for, leading to a potential second down-leg in the world economy and global markets. As is usual with these things, traders and investors alike would have to monitor the situation closely to see if this is just a one-off event, or the start of a series of converging events.

Dubai debt default looms on $80 billion of loans, requests debt payment freeze

edition.cnn.com :

Dubai has shocked investors by asking for a debt standstill at Dubai World, the government's flagship holding company that has developed some of the world's most extravagant real estate projects. The move raised the spectre of default in the Middle East's trading hub just as early signs of economic recovery have emerged. Dubai rode the wave of easy credit but was badly hit by the global credit crisis. Dubai's surprise move angered investors who had been reassured by local officials for months that the city would meet all obligations on its $80bn (?48bn) of gross debt in spite of the global recession and a real estate crash.

The government company has had to cancel plans for the world's tallest tower and a constellation of reclaimed islands, as collapsing cash flow left the developer on the brink. The government's announcement came after the local stock market had shut and on the eve of the Eid holidays, during which most offices will be shut until December 6. S&P and Moody's immediately downgraded the ratings of all 6 government-related issuers in Dubai. Moody's cut ratings on some Dubai government-related entities to junk status, while S&P cut ratings on some entities to one level above junk. S&P said the restructuring "may be considered a default under our default criteria".

- And it wasn't that long ago, perhaps a couple of weeks or two, that I heard talk from some people around me, not peakoilers obviously, who had been saying that in Dubai the oil rushes from the ground. Of course, since they are not peakoilers, how could they have known that these famed oil gushers have not been seen for decades, or how Dubai, and possibly large swathes of the Middle East oil producers are quite possibly past the point of peak oil?

And since they are not members of this small but informed community, how could they have known about Dubai Dreams, the post made back in Jul 2005, where it was revealed that not all is as it seems over there? The contrarian community has also been monitoring developments in this area and it would not come as a surprise that the situation has come to this.

Rather, what *is* a little surprising to us is the timing and manner in which the announcement has been made. Releasing such a huge piece of news on the eve of a super-long holiday weekend? And, coincidentally, right before Thanksgiving on the American side of things? The Times Online reports :

Like over-leveraged companies that are being exposed by the recession, Dubai had borrowed beyond its means to fund its building boom. But, as shocked investors saw it, this was a government at risk of bankruptcy, not a corporation ... four lenders - HSBC, Standard Chartered, Barclays and RBS - are the most exposed. The trauma of Dubai's news was compounded by its lack of clarity. Having issued its statement the emirate shut up shop for the Eid holiday, saying no more ...