Gold, silver, crude oil plunge on dollar rebound and growth fears.
Gold plunged below $800 an ounce, silver dropped as much as 12 per cent and oil, corn and copper slumped as the dollar’s rebound reduced the appeal of commodities after a six-year boom.
Palm oil tumbled as much as 9 per cent, and rubber and wheat fell as the dollar headed for its longest winning streak in more than two years and on concern a spreading global economic slowdown will reduce demand for raw materials.
Commodities, measured by the Standard & Poor’s GSCI index, have tumbled 21per cent from their record July 3, descending into a bear market. Oil traded near its lowest for more than three months, gold for eight months and silver for almost a year. Copper and corn reached six-month lows this week.
“Prices have made a peak,’’ said investor Marc Faber, 62, who publishes the Gloom, Boom & Doom Report. “Whether that is a final peak or an intermediate peak followed by higher prices, we don’t know yet. It could go lower,’’ he said.
Gold fell to $782.27 an ounce, its lowest since December 3, at 9:52 am London time on Friday. Silver’s 12 per cent drop was the most since June 2006 and the metal traded at $12.905 an ounce, down 9 per cent. “It’s a big shakeout in gold and silver for people who have been long but don’t really believe in the commodities,’’ said Mario Innecco, a trader at MF Global in London. “If you do it speculatively, with leverage, I don’t recommend buying it now.’’
Hedge funds
Gold has dropped 24 per cent from its record $1,032.70 an ounce on March 17 and silver has slumped 40 per cent from its $21.3550 peak the same day. “I expect commodity prices to remain subdued until mid - 2009,’’ said Arjuna Mahendran, head of investment strategy at HSBC Private Bank in Singapore. “The major issue in commodities is the proliferation of ETFs and hedge funds. As they unwind positions, this leads to the price overshooting.’’
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The dollar has climbed 5.3 per cent against the euro this month and reached a 5-month high today, heading for its fifth weekly gain. US consumer prices rose at the fastest pace in 17 years in July, reducing the ability of the Fed to lower interest rates should the economic slowdown deepen.
Gold’s rally has been “dollar-driven probably because we are supposedly seeing more writedowns in the European banks,’’ Charles Dowsett, head of structuring and trading of precious metals at ABN Amro Holding NV, said. “We could see gold go all the way down to $750 an ounce.”
Gold may rebound from a slump and rally through 2010 as fabrication demand rises and on expectation the dollar will resume its decline against the euro, Citigroup Inc. said, forecasting the metal to average $950 next year and $1,000 in 2010.
Crude oil for September delivery dropped as much as $2.26, or 2 per cent, to $112.75 a barrel on NYMEX, and traded at $113.10 at 9:58 am London time.
Copper fell 2.4 per cent to $7,207 a tonne on the London Metal Exchange, corn declined 2.8 per cent to $5.61 a bushel, and palm oil tumbled as much as 8.7 per cent to 2,392 ringgit ($714) a tonne.