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NEW YORK (AP) -- Investors fled commodities Thursday after the first reading on third-quarter gross domestic product provided an emphatic signal that the economy is indeed in a downturn.
Gold fell sharply on the news, as did other precious metals and energy and agriculture futures.
"In general, a weakening economy should hurt demand for commodities, especially gold, which is a luxury type item," said Tom Pawlicki, an energy and precious metals analyst with MF Global Research in Chicago.
The Commerce Department reported that the GDP, a broad barometer of the nation's economic health, shrank at a 0.3 percent annual rate in the third quarter. While the report was better than analysts expected, it marked the worst showing since the economy contracted at a 1.4 percent pace in the third quarter of 2001, when the nation was suffering through its last recession. Many economists define a recession as two consecutive quarters of economic contraction.
Commodities gave up some of the big gains logged Wednesday, when prices soared after the Federal Reserve cut its key federal funds rate to help ease credit markets and, in turn, boost the economy. Lower interest rates tend to weaken the dollar as investors go elsewhere for better returns. And when the dollar falls, investors often turn to commodities as a hedge against inflation.
But some analysts contend that despite the rate cut, the dollar will likely continue its ascent, as investors shift their concerns to weakening markets overseas. Expected rate cuts in Europe will undermine the euro, and in turn boost the greenback.
Jon Nadler, a senior analyst at Kitco Bullion Dealers Montreal said Wednesday's surge in prices was likely short-lived, as the direction of the dollar continues to "call the shots."
"The revival in commodities is on ice for the time being, and maybe for the next two years," he wrote in a research note Thursday.
Gold for December delivery fell $15.50 to settle at $738.50 an ounce on the New York Mercantile Exchange.
Other precious metals also fell. December silver slipped 2 cents to $9.785 an ounce on the Nymex, while copper for December delivery fell 19.75 cents to settle at $1.8905 a pound.
On Wall Street, the major indexes finished higher, all rising more than 2 percent. The dollar was mixed against other major currencies and the yield on the benchmark 10-year Treasury note rose to 3.92 percent from 3.86 percent late Wednesday.
Energy prices stumbled on the Nymex, as the declining GDP number stirred concerns that already weak demand for gasoline is further crumbling.
Light, sweet crude for December delivery fell $1.54 to settle at $65.96 a barrel on the New York Mercantile Exchange. Oil prices have fallen 55 percent since peaking above $147 a barrel in mid-July.
Gasoline futures fell 8.6 cents to $1.467 a gallon, while heating oil fell nearly 2 cents to fetch $1.9841 a gallon.
Meanwhile, grain prices fell on the Chicago Board of Trade.
December wheat futures fell 23.25 cents to $5.38 a bushel, while corn for December delivery settled down 11.70 cents to $4.0905 a bushel.
January soybeans dipped 4 cents to $9.43 a bushel.
