LONDON (Dow Jones)--Commodities are starting the week in the fashion that has been broadly expected: economic growth-linked assets like industrial metals and oil are lower amid a 'risk-off' attitude to investment, while safer bets like gold and silver are soaring.
The downgrade late Friday by Standard and Poor's of the U.S.'s prized AAA rating has sparked additional financial turmoil in markets already badly bruised from the worst pan-asset class sell-off since October 2008 after a catalogue of negative news, particularly in Europe and the U.S., took its toll.
Gold's gains have been spectacular in recent days, but the speed of the metal's upside Monday is surprising even the most bullish of market bugs, rising over $70 a troy ounce from Friday's lows to a new record high of $1,715.29/oz.
Silver is also firmer, up 5.6% from Friday's lows at $40.38/oz despite its link to growth due to its consumption in electronics and other industrial uses.
In contrast, London Metal Exchange copper prices are down 3.2% from Friday's high at $9,030 a metric ton, having slipped to a two-month low of $8,950/ton overnight, while Nymex September light, sweet crude futures are down 4.4% at $84.45 a barrel.
The FTSE 350 Basic Resources index, which includes U.K.-listed oil, gas and mining companies, fell 1.3%. The FTSE 350 mining index was also down 1.3% while the FTSE 350 oil and gas producers index was up 0.2%. The FTSE 100 index was down 0.1%.
Yet many participants say the downgrade was widely anticipated, and that the markets' negative response is knee-jerk and overdone. Now's a good time to buy copper and other commodity products that have been pummelled lower, they say, and quickly, given that these commodity markets made the majority of their losses last week.
That said, attention is likely to return soon enough to the weakening economies across the G10 nations, which are in crisis-management mode. The reality that the euro-zone debt problems aren't going away has finally hit home to investors, while the much-feared term 'recession' is being bandied around more readily in association with the U.S., which is struggling to keep itself from sinking into a sea of debt.
The main commodity beneficiary is gold. Investment bank Goldman Sachs (GS) earlier raised its forecasts for the precious metal, noting that its economists now place a one in three chance of a U.S. recession that would most likely occur within the next six months. It now sees gold going higher and for longer, citing unsettling sovereign debt issues and lower growth forecasts.
-By Andrea Hotter, Dow Jones Newswires; +44 (0)20 7842 9413; andrea.hotter@dowjones.com
