MG:Fears of recession hit oil, lift gold to records
LONDON/SINGAPORE - Most commodities deepened losses and gold added to its string of record peaks on Tuesday in volatile markets as investors kept liquidating risky assets on growing fears of a global recession.
Brent crude oil clawed back from a six-month low in Asian trading to briefly burst into positive territory before sinking back into the red, while copper pulled away from an eight-month low as some bargain hunters prowled the markets.
The downgrade of the United States' credit rating on Friday, along with a raging debt crisis in Europe, triggered a selloff that has knocked nearly 10 per cent off the price of U.S. crude in just two days and sent other commodities tumbling.
Some analysts expect commodities to keep sliding in a rout of inter-linked markets that saw world stocks sink for a 10th session, losing 20 per cent since peaking in May, and the U.S. dollar shed another one per cent against the yen.
"The market was clearly very extended," said Sean Corrigan, chief investment strategist at Diapason Commodities Management in Switzerland. "Everybody was long in the same sort of risk trades and they were all cross-correlated. People traded the commodity currencies against copper against Chinese banks against junk bonds and so on.
"How much further we go I don't know, but I think the chances are that, whereas we spent nine to 10 months of buying dips, now we're possibly in a game where we sell rallies for a while."
Even if the U.S. Federal Reserve hints at more stimulus at a meeting later Tuesday, markets are likely to be wary after two rounds of monetary easing have failed to address underlying problems, Corrigan added.
Investors have been counting on China's economic strength to support commodity demand when the Western world is on shaky ground. But data on Tuesday showing China's inflation, speeding to a higher-than-forecast 6.5 per cent in July, suggests Beijing may have limited room to stimulate domestic growth.
"It's crucial for commodity markets that China doesn't slide. Fears of a China slowdown would really take the wind out of the markets," Citigroup analyst David Thurtell said.
The one bright spot was gold, which staged its biggest three-day rally since late 2008 during the global financial crisis.
Spot gold hit a record $1,778.30 U.S. an ounce as investors sought refuge in the safe haven asset from chaos in other markets. That marked its 12th record in 20 sessions.
"The market could come off from here, but it's headed in a northerly direction," said ANZ head of metal sales Peter Hillyard. "From where we are now, you might think we could see some sort of pullback. But I'm talking about a momentary thing, a pullback like the loading of a gun, which then fires away."
The increasing gloom about sluggish global growth and the impact on commodities demand pushed Brent crude briefly below the $100 per barrel level.
"The underlying fundamental is that demand in Europe and the U.S. is not strong, we have a selloff in equities, and confidence in the global recovery has been hit again," said Olivier Jakob, analyst at Petromatrix in Zug, Switzerland.
Brent crude fell as much as $5, to $98.74 a barrel, the lowest intraday price since Feb. 8; it recovered to $102.90 by late Morning in London, still nearly $25 off an April peak above $127.
U.S. crude plunged nearly seven per cent, to $75.71, its lowest since September 2010 before also paring losses. U.S. crude's discount to Brent rose to its highest ever, reaching a peak of $23.76.
Industrial metals fared slightly better, as copper bounced from eight-month lows and nudged into positive territory, bolstered by consumer buying.
Benchmark three-month copper on the London Metal Exchange rebounded from $8,446.25, a fall of 4.7 per cent, its lowest level since early December 2010, and gained 0.3 per cent.
Aluminum rose 1.1 per cent to $2,412 a tonne and nickel added nearly one per cent to $21,430.
"Regardless where you are, some of these commodities do represent a reasonable value," said Jonathan Barratt, managing director of Sydney-based Commodity Broking Services.
In agricultural markets, U.S. soy dropped to its lowest since mid-March while corn fell to a one-week low and wheat hovered near a one-month low.
Sugar and coffee futures also were weighed down by recession fears, but cocoa bucked the trend and consolidated above a nine-week low touched on Friday.
