Commodities erased this year's gains after the U.S. Federal Reserve said the world's biggest economy faces “significant downside risks,” boosting speculation raw-material demand will falter.
The Standard & Poor's GSCI Index of 24 commodities dropped 4.1 percent as of 2:44 p.m. in London, bringing the decline this year to 3.1 percent. Copper fell to a one-year low in New York and London and oil dropped to the lowest in four weeks.
The Federal Reserve said yesterday it will replace $400 billion of short-term debt with longer-term Treasuries to spur growth, saying it sees “significant downside risks” to growth.
The Dollar Index gained to a seven-week high, making commodities trading in the U.S. currency more costly for buyers using other monies.
“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.
“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,” Commerzbank AG said in a report. The U.S. is the second biggest metals consumer.
Three-month copper on the London Metal Exchange fell as much as 6.6 percent to $7,750 a metric ton, the lowest price since Sept. 22 last year. Prices in London have dropped 24 percent from the record $10,190 on Feb. 15, qualifying for a bear market if they close at or below $8,152.
Copper may drop to as low as $7,000 as concerns grow about the global economic slowdown, Im Byeong Chloe, an executive at South Korea's Public Procurement Service, said on Sept. 21. The contract hasn't traded below $7,000 since July 2010.
Gold for December delivery declined as much as 4.3 percent to $1,731.20 an ounce on the Comex in New York. Immediate-delivery gold fell as much as 2.9 percent to $1,730.28 an ounce.
Silver futures for December delivery dropped 8.4 percent to $37.06 an ounce on the Comex.
November-delivery oil fell as much as 6.6 percent to $80.25 a barrel, the lowest price for a most-active contract since Aug. 19, on the New York Mercantile Exchange. Wheat for December delivery fell as much as 3.3 percent to $6.45 a bushel on the Chicago Board of Trade.
