ET:Oil, metals extend losses as Fed comments spook investors
SINGAPORE: Gold dropped on Thursday to its weakest in seven months and oil and copper hit multi-week lows as commodities stretched losses on concerns that the Federal Reserve might pull the plug on its stimulus program sooner than thought.
Talk of a hedge fund liquidating positions also helped pull down prices below key support levels, as investors reassessed whether bullish bets on the global economy were premature, with evidence of a rebound in raw material demand yet to emerge.
Commodities traded in Shanghai and Tokyo similarly slid, with the Chinese also spooked by government efforts to extend property curbs and signs that the central bank may be beginning a tightening cycle.
Several Fed officials think the U.S. central bank might have to slow or stop buying bonds before seeing the pickup in hiring the measure is designed to deliver, according to minutes of the Fed's policy meeting last month.
"Overall the FOMC is the one people are watching," said Sijin Cheng, commodities analyst at Barclays Capital.
"People do expect the Chinese government to promote moderate growth for 2013, so consensus is a modest recovery. Before physical demand really comes in from China or the United States, I think copper will be dominated by macro sentiment."
Brent crude for April delivery lost 65 cents to hit a three-week trough of $114.95 a barrel, adding to a fall of nearly $2 on Wednesday.
U.S. crude touched a session low of $94.30, near the previous session's intraday bottom of $93.92, which was the weakest in just over a month.
Oil was among the hardest hit by Wednesday's sell-off. Hedge funds and other large speculators have nearly doubled their bets that oil prices will rise since mid-December, and have amassed positions in Brent and U.S. crude oil futures and options equivalent to around 440 million barrels of oil, regulatory and exchange data shows.
Oil "was on helium again and got ahead of fundamentals," said Tony Nunan, a risk manager at Mitsubishi Corp.
"But I think everyone is concerned because high frequency traders make the price moves more violent," he said, adding that Ichimoku cloud charts showed the next support level for Brent was at $114.31.
'FALLING KNIFE'
Spot gold fell to $1,554.49 an ounce, its lowest since July 2012, extending Wednesday's slide of 2.6 per cent, its steepest one-day drop since last June.
Expectations that the global economy may be on better footing this year due to positive indicators, from China to the United States, have dimmed gold's safe-haven draw.
But suggestions that the Fed might ease up on bond-buying have also cut its appeal as an inflation hedge, dragging the price below the $1,600 psychological support level.
But Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong, said any sell-off linked to fears that central banks may slow their stimulus programs could be short-lived.
