Gold, Silver Slump, Leading Commodities Drop on Dollar, Growth

Aug. 15 (Bloomberg) — Gold plunged below $800 an ounce, silver dropped as much as 12 percent and oil, corn and copper slumped as the dollar’s rebound reduced the appeal of commodities after a six-year boom.

Related article: U.S. Dollar Intervention !!!

Palm oil tumbled as much as 9 percent, 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 21 percent 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 by phone today from Chiang Mai, Thailand.

Gold fell to $782.27 an ounce, its lowest since Dec. 3, at 9:52 a.m. London time today. Silver’s 12 percent drop was the most since June 2006 and the metal traded at $12.905 an ounce, down 9 percent.

“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 Ltd. in London. “If you do it speculatively, with leverage, I don’t recommend buying it now.”

Hedge Funds

Gold has dropped 24 percent from its record $1,032.70 an ounce on March 17 and silver has slumped 40 percent 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.”

The dollar has climbed 5.3 percent against the euro this month and reached a 5 1/2-month high today, heading for its fifth weekly gain. U.S. 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 by phone from Sydney. “We could see gold go all the way down to $750 an ounce.”

Possible Rebound

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.

“Longer term, we would not be surprised to see gold double,” the bank’s analysts John Hill and Graham Wark wrote in a report. “We would be aggressive buyers at current levels expecting gold to work higher through 2009/10.”

Crude oil for September delivery dropped as much as $2.26, or 2 percent, to $112.75 a barrel on the New York Mercantile Exchange, and traded at $113.10 at 9:58 a.m. London time. Copper fell 2.4 percent to $7,207 a ton on the London Metal Exchange, corn declined 2.8 percent to $5.61 a bushel, and palm oil tumbled as much as 8.7 percent to 2,392 ringgit ($714) a ton.

To contact the reporters for this story: Dave McCombs in Tokyo at dmccombs@bloomberg.netFeiwen Rong in Singapore at Frong2@bloomberg.net

Last Updated: August 15, 2008 05:01 EDT

Source: Bloomberg

Leave a Comment