Commodities erased this year’s gains after the U.S. Federal Reserve said that the world’s biggest economy faces “significant downside risks,” boosting speculation raw-material demand will falter.
The 24-member Standard & Poor’s GSCI Index dropped as much as 3.7 percent to 614.77, the lowest level since Aug. 9, and a 2.7 percent decline this year. Copper tumbled into a so-called bear market, while crude oil fell to a four-week low and wheat slipped to a 10-week low.
European stocks tumbled and the dollar climbed to a seven- month high against six major currencies after the Federal Reserve said yesterday it will replace $400 billion of short- term debt with longer-term Treasuries to spur growth as the recovery falters two years after the biggest slump since the Great Depression.
“We’re seeing the dollar strengthen and that’s weighing down on the whole commodity complex,” Dan Smith, an analyst at Standard Chartered Plc in London, said today by phone.
The world economy will expand 4 percent this year and in 2012, the International Monetary Fund said on Sept. 20, cutting forecasts made in June for a 4.3 percent expansion this year and 4.5 percent in 2012.
Manufacturing in China, the world’s largest metals user, may shrink for a third month in September, according to a preliminary index of purchasing managers from HSBC Holdings Plc and Markit Economics released today. The initial reading for this month was 49.4 compared with a final 49.9 for August and 49.3 for July. Figures below 50 signal a contraction.
‘World Slowdown’
“On the back of the plentiful bearish news and the further rise of risk aversion, it is not surprising that metal prices have come under strong pressure,” said Commerzbank AG analysts including Eugen Weinberg, Frankfurt-based head of commodities research. After China, the U.S. is the second biggest consumer of metals.
Three-month copper on the London Metal Exchange fell as much as 5.8 percent to $7,820 a metric ton, the lowest price since Sept. 22 last year. That’s 23 percent below the record $10,190 set on Feb. 15, more than the 20 percent drop that’s regarded by some investors as signaling a bear market.
Copper may drop to as low as $7,000 as concerns grow about the global economic slowdown, Im Byeong Cheol, an executive at South Korea’s Public Procurement Service, said on Sept. 21. The contract hasn’t traded below $7,000 since July 2010.
Immediate-delivery gold fell as much as 2 percent to $1,746.88 an ounce in London. Gold for December delivery declined as much as 3.3 percent to $1,749 on the Comex in New York. Spot silver fell as much as 5.1 percent to $37.6525 an ounce in London.
Oil Slides
November-delivery oil fell as much as 4.7 percent to $81.86 a barrel, the lowest level since Aug. 22, on the New York Mercantile Exchange. Brent for November fell as much as 3.6 percent to $106.39 on the ICE Futures Europe Exchange.
Wheat for December delivery fell as much as 3.1 percent to $6.46 a bushel on the Chicago Board of Trade, the lowest price since July 12. December-delivery corn lost as much as 3.1 percent to $6.6425 a bushel, while soybeans for November delivery declined as much as 2.2 percent to $12.915 a bushel, the lowest price since Aug. 9.
To contact the reporter on this story: Sharon Lindores in London at slindores@bloomberg.net
To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.
