Oil dropped for the first time in six days after Italian bond yields surged to euro-era records and a German newspaper reported that Chancellor Angela Merkel’s party wants to enable countries to exit the common currency. Futures fell 1.1 percent after Italian bond yields topped the 7 percent level that drove Greece, Ireland and Portugal to seek bailouts. Merkel’s Christian Democratic Union may propose easing rules on euro membership, Handelsblatt reported in a preview of an article to be published tomorrow, citing unidentified participants in the discussion.“The European debt crisis has negative implications for oil prices and demand,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at Manulife Asset Management in Boston. Crude oil for December delivery dropped $1.06 to settle at $95.74 a barrel on the New York Mercantile Exchange. The contract climbed to $97.84 earlier, the highest intraday price since Aug. 1. Futures are up 4.8 percent this year. Oil trading volume in New York was 748,402 contracts at 3:31 p.m. in New York, exceeding the three-month average of 681,000 contracts for the first time since MF Global Holdings Ltd. filed for bankruptcy on Oct. 31. Volume tumbled to 381,435 on Oct. 31, the lowest level since April 29.
GOLD
Gold futures declined from a seven-week high as the dollar’s surge curbed demand for the precious metal as an alternative investment. The greenback headed for the biggest gain since August 2010 against a basket of major currencies. Earlier, gold topped $1,800 an ounce amid leadership changes and debt turmoil in Italy and Greece. “A stronger dollar will keep buying interest in precious metals muted,” Marc Ground, an analyst at Standard Bank Plc, said in a report. “We have seen some support from investors buying on dips.”Gold futures for December delivery fell 0.4 percent to close at $1,791.60 at 1:59 p.m. on the Comex in New York. After the settlement, the price touched $1,772.20.The metal reached $1,804.40, the highest for a most-active contract since Sept. 21. The commodity has climbed 26 percent this year. Italian bonds slumped , driving yields to euro-era records, after LCH Clearnet SA raised the deposit it demands for trading the securities. Prime Minister Silvio Berlusconi’s offer to resign left his weakened government struggling to implement austerity measures to reduce borrowing costs. “We may see a flight to cash because the situation in Italy looks very grave,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview.
