Gold, platinum and silver plunged to their lowest in more than seven months, leading commodities into a bear market, on concern a spreading global economic slowdown will reduce demand for raw materials.
Precious metals also slumped as crude oil prices fell and the dollar gained, reducing their appeal as an inflation hedge and alternative investment. Gold has tumbled 22 per cent from its record $1,032.70 on March 17. Platinum and silver are down 36 per cent and 33 per cent from their peaks.
Commodities, as measured by the Standard & Poor’s GSCI index, have lost 21 per cent from a record July 3, descending into a bear market. Crude oil prices are down 23 per cent from a peak of $147.27 a barrel July 11, on signs a US economic slump will extend into 2009. Corn, wheat and soybeans are in bear markets after sliding from highs set this year.
“We’re seeing a reconfiguration of the markets in the last 48 hours related to the realisation that the slowdown in the US has broadened across the globe,” Darren Gibbs, chief economist at Deutsche Bank AG in Auckland, said by phone on Tuesday. “I’d imagine all sorts of trades are being unwound.”
Tumbling raw-material prices may erode profits at BHP Billiton, the world’s largest mining company, and Exxon Mobil Corp, the biggest publicly listed oil company. Global energy and raw-materials stocks, last year’s best-performing industries, fell into bear markets this month.
‘Losing lustre’
The GSCI index surged 41 per cent in the first half as equity markets and a declining dollar prompted a “buying orgy” by investors, Paul Touradji, founder of the $3.5 billion hedge fund Touradji Capital Management, said in March.
Gold fell as much as 2.6 per cent to $802.34 an ounce and traded at $810.01 an ounce at 3:50 p.m. Singapore time. Platinum lost as much as 3.7 per cent and silver 4.5 per cent. The dollar traded near a 5 1/2-month high against the euro on Tuesday and close to a seven-month high against the yen.
“The dollar had an enormous spike in the past couple of weeks, so the precious metals are losing their lustre,” Peter McGuire, managing director at Commodity Warrants Australia, said on Tuesday by phone from Sydney.
The US economy, the world’s largest, will grow at an average 0.7 per cent annual pace from July through December, half the gain in the first six months of the year, according to the median forecast of 50 economists surveyed by Bloomberg News.
Boom slows
Household spending, which has grown every quarter since 1992, is projected to stall in the last three months of the year as the impact of tax rebates fades, wages fail to keep up with inflation and property values fall, it showed.
The commodity boom is fading, says Michael Aronstein, chief investment strategist at Oscar Gruss & Son in New York.
“I think it’s over in terms of the investment hypothesis, at least for the next several years,’’ Aronstein said in an interview August 5. “I think the demand destruction, both in the developed world and the developing world is going to be quite a bit greater than people assume.”
Investor Jim Rogers, 65, who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce, differs.
The fundamentals for commodities are “astoundingly” good and the bull market “has a long way to go,” he told a conference in Australia on August 6.
