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Oil and gold jump to new records Oil prices in retreat from record
(about 5 hours later)
The prices of oil and gold hit records as investors switched money into commodities to escape turmoil in other financial markets. The price of oil has fallen sharply from a record high as turmoil in banking and financial markets triggered a sell-off.
US light sweet crude hit $111.80 a barrel on Monday, before slipping to $107 in afternoon trade in New York. US light sweet crude fell to $105.68 a barrel after earlier clearing a fresh high of $111.80 a barrel.
The spot price for gold also briefly hit a record above $1,030 an ounce. Investors fear the financial crisis that forced the sale of US banking giant Bear Stearns bodes ill for the world economy and demand for oil.
Commodity prices have been boosted by the falling dollar, which hit a record low against the euro and fell to a 12-year low against the yen. However gold, viewed as a safe-haven asset, hit a high of $1,033.9 an ounce.
Oil prices have risen about 16% this year, gold is up 23%. Oil prices had been boosted by the falling dollar, which hit a record low against the euro and fell to a 12-year low against the yen.
'Dollar weakness' But investors turned cautious on Monday amid widespread turmoil in financial markets and took profits on the recent rally in oil prices.
Investing in oil and gold is seen as a way of protecting against the dollar's weakness. Oil prices have risen about 16% this year, while gold is up 23%.
"The recent oil prices have been swayed by the currency moves, including this latest rally to a record," said Tony Nunan, risk management executive at Tokyo-based Mitsubishi. "There is little question the market is overbought and could become even more vulnerable to selling due to the deteriorating economic conditions, as well," said Mike Fitzpatrick at MF Global.
"The dollar weakness is the factor at the moment." he added. Investing in gold is also seen as a way of protecting against the dollar's weakness.
Jitters
The dollar has been undermined by the credit crisis and the effect that is having on the US economy.The dollar has been undermined by the credit crisis and the effect that is having on the US economy.
The near collapse of Bear Stearns last week raised fears that US banks were struggling to cope with the credit crisis.The near collapse of Bear Stearns last week raised fears that US banks were struggling to cope with the credit crisis.
"Oil clearly led the way down," said David Holmes, director of metals sales at Dresdner Kleinwort Investment Bank."Oil clearly led the way down," said David Holmes, director of metals sales at Dresdner Kleinwort Investment Bank.
"The market is incredibly jittery because of the financial situation," he said."The market is incredibly jittery because of the financial situation," he said.
Looking ahead, analysts say the Fed could cut overnight rates by up to 125 basis points by the end of its meeting on Tuesday.Looking ahead, analysts say the Fed could cut overnight rates by up to 125 basis points by the end of its meeting on Tuesday.
"What is really important for this week is to see what the Fed is doing," said Michael Widmer, analyst at Lehman Brothers."What is really important for this week is to see what the Fed is doing," said Michael Widmer, analyst at Lehman Brothers.
In the long run, oil demand might be reduced by a severe recession.In the long run, oil demand might be reduced by a severe recession.