Commodity-focused exchange traded funds (ETFs) are getting kicked around today, led by a 9%+ drop-off in ETF Securities Physical Palladium (NYSEArca: PALL). What’s going on here?

Commodities have tumbled to an eight-month low, thanks to several factors:

  • The sovereign debt crisis in Europe. Investors around the world are increasingly worried that the problems in Greece, Spain and other countries could have a contagion effect on the global economy.
  • With all this uncertainty, investors are looking for quality in the form of gold and Treasury bonds. Risk is not on the menu for many right now.
  • The dollar is getting stronger against the euro. In fact, the euro is trading at its lowest level in four years against the greenback. Since many commodities are priced in U.S. dollars, when the dollar is strong it makes them more expensive for overseas buyers.
  • Demand for some commodities is simply not there, especially when it comes to fuel. The U.S.’s stockpile of natural gas is 17% above the five-year average while nervous consumers are still tempering their travel plans, depressing oil and gas demand.

Among the commodities and commodity ETFs getting hit hardest today include:

  • Oil, Gas and Natural Gas. Oil prices have plunged 8% today to their lowest level in 10 months. Crude oil for delivery in June is now below $65 a barrel. Experts predict that gas prices have already peaked this year and that oil prices are likely to plunge into the $40 a barrel range. Funds such as First Trust ISE-Revere Natural Gas (NYSEArca: FCG), United States Oil (NYSEArca: USO), United States Gasoline (NYSEArca: UGA) and United States Natural Gas (NYSEArca: UNG) are all down by as much as 4% today. [Oil ETFs Get Shaky.]
  • Metals. Platinum and palladium prices have turned south by 9%. Some concerns are that the market was simply overbought and that money is now shifting onto the sidelines because of uncertainty that the demand will be there. Platinum and palladium are used heavily in industry and manufacturing, so they’re sensitive to what’s happening in the economy right now. Gold has managed to remain more solid in the face of crisis because of moves in the currency markets. ETFs heavily impacted today include ETFS Physical Palladium (NYSEArca: PALL), ETFS Physical Platinum (NYSEArca: PPLT) and Market Vectors Steel (NYSEArca: SLX). [Nickel ETF Hits a Fork in the Road.]
  • Agriculture. Wheat, corn, soybeans, oats, beef, pork and other agriculture commodities are down today. Concerns are that the crisis in Europe will dent demand for U.S. crop exports for use in food, animal feed and biofuels. ETFs hurting today include Market Vectors Agribusiness (NYSEArca: MOO) and Market Vectors RVE Hard Assets Producers (NYSEArca: HAP). PowerShares DB Agriculture (NYSEArca: DBA) is trading flat today, likely because of its broader exposure to a basket of commodities beyond corn, soybeans and wheat. It also holds sugar (which is holding up fairly well today), cotton, coffee and cocoa. [Commodity ETF Strategies.]

How long will this last? No one knows for certain – it depends on a number of situations getting resolved. Commodities could continue to struggle in the near-term if Europe doesn’t figure out a way to definitively deal with its problems, and does so quickly.

For more stories about what’s happening in the world of commodities, visit our commodity ETF category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.