London/Singapore:The killing of Osama bin Laden cut prices for oil, gold and silver on Monday, but analysts warned that the political risk factor that has boosted the cost of energy and raw materials was far from over.
War in Libya, unrest across the Middle East and the chance of reprisals after the death of the Al Qaida leader were still enough to worry oil markets, which have rallied by about a quarter this year on supply disruption fears.
Oil prices initially fell more than $4 per barrel in holiday-thinned trade, but recouped around half those losses by the open of markets in New York, while gold dropped from record high, as the dollar firmed off its lowest level in almost three years.
“The fall in price should be short-lived,” said Carsten Fritsch, commodity analyst at Commerzbank AG in Frankfurt.
“Talk that the risk premium should ease due to bin Laden’s death is premature. The risk premium is high because of the war in Libya and ongoing unrest in the Middle East and that is unlikely to change,” he added.
Weakness in the dollar has boosted commodities denominated in the greenback in recent months.
Brent crude futures for June fell $4.22 to a low of $121.67 a barrel before climbing back to $124.48 by 1319 GMT. Last month, Brent hit a 32-month high above $127.
US crude was down just 58 cents at $113.32 a barrel, having earlier traded as low as $110.82.
Spot gold was volatile, hitting a fresh record high at $1,575.79 before shedding more than $35 to a low of $1,540.39 as the news broke. It recovered to $1,555.09 an ounce by 1319 GMT on Monday.
Silver was hit the hardest, falling by much as 10% in its steepest slide since late 2008.
Traders have been booking profits after the precious metal broke a 31-year-old record high last week, following a 170% rally in just 12 months.
“Silver is an accident waiting to happen, and it seems like it has incurred ‘bumper’ damage today,” said David Thurtell, an analyst at Citigroup Inc.
Silver was bid at $45.47 an ounce at 1319 GMT having earlier fallen to as low as $42.58.
Buoyant global demand also ensured the fall across commodities was limited, analysts said.
“There is still a lot of dust that needs to settle to see if today’s trading action is more of an anomaly or resting point in an otherwise upward trend in commodities and equities and a downward trend in the US dollar,” said Dominick Chirichella, senior partner at Energy Management Institute in New Jersey.
“I view today’s trading action as one of those watch days to see how the markets move throughout the day to determine whether it is a transitory move or the beginning of a change in the basic trends.”
“At this point, I view the market move as more likely to fall into the category of transitory,” he added.
Ultra-loose monetary policy and demand for inflation-resistant investments, including oil and gold, have also underpinned the market and will not evaporate after bin Laden’s death.
Chicago corn and wheat futures fell about 1% on Monday after the death of Al Qaida leader.
Corn, linked to crude prices through its use in ethanol, also came under additional pressure from forecasts of improved weather in the US Midwest, which raised expectations of progress in this year’s delayed plantings.
Chicago Board of Trade front-month May corn fell 0.9% to $7.47 a bushel and wheat shed 1.01%.
Markets across large parts of Asia and much of Europe were closed for the May Day and Labor day holidays, reducing the number of market participants and making the trade volatile on Monday.
Gene Ramos in New York, Chris Johnson and Jan Harvey in London, Martin Roberts in Madrid, Clarence Fernandez and Nick Trevethan in Singapore contributed to this story.