Commodities slump the most since July on stronger dollar

The S&P GSCI index of 24 commodities fell as much as 4.2 percent, the biggest drop since July 29. The index, which didn't price Thursday because of the Thanksgiving Day holiday, traded 3.6 percent lower at 496.355 as of 11:17 a.m. in London. Gold fell the most since January and oil retreated to a six-week low.

The declines are “a correction reflecting the unfortunate timing of the Dubai news which spooked the markets,” Daniel Major, a London-based commodity analyst at RBS Global Banking and Markets, said by phone. “The sharp rally in the dollar is also driving gold.”

Commodities, as measured by the S&P GSCI, jumped as much as 50 percent this year, amid the worst global recession since World War II. Copper and lead more than doubled and crude oil advanced as much as 82 percent as Chinese demand expanded and producers curbed supply. Investors are “chasing commodities” and there is a risk of bubbles emerging, Nouriel Roubini, the New York University professor who predicted the global financial crisis, said a week ago.

The U.S. Dollar Index, a six-currency gauge of the greenback's value, rose as much as 1 percent, strengthening for a second consecutive day. A stronger dollar makes commodities denominated in the currency more expensive for those holding other monies. Some investors also buy commodities as a hedge against a weaker dollar.

Gold for immediate delivery lost as much 4.2 percent, the biggest intraday decline since Jan. 12. The metal traded at a record US$1,195.13 Thursday and has advanced 32 percent this year, the best performance since 1979. Silver shed 3.6 percent to US$17.9975 an ounce.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, reached a record 1,134 metric tons in June. At the time, it exceeded Switzerland as the world's sixth-largest gold holding.

“The fundamental reason for gold remains unchanged,” said Janet Kong, a commodity analyst at Goldman Sachs (Asia) LLC in Hong Kong. “This is a good pullback for people who want to have positions in it.”

Crude oil fell as much as 7.1 percent to US$72.39 a barrel on the New York Mercantile Exchange, where markets didn't settle Thursday because of the public holiday. That was the lowest compared with intraday prices since Oct. 12.

Lower-than-average volumes are being traded in commodity markets, RBS's Major said. “You can't read too much into this,” he said.

Copper for delivery in three months fell 1.2 percent to US$6,738 a ton on the London Metal Exchange, declining for a second day and paring its annual gain to 119 percent. Aluminum, nickel, zinc, tin and lead also dropped.

“Base metals are the commodity category with the highest correlation to equity markets and therefore suffered more than other commodity categories from the equity market sell-off,” Tobias Merath, head of commodities research at Credit Suisse in Zurich, wrote Friday in an e-mailed report.

The MSCI World Index of equities in 23 developed nations fell 0.8 percent, declining for a second day.

In agricultural markets, wheat fell 1.8 percent to US$5.6125 a bushel in Chicago trading. Corn declined 1.7 percent to US$4.01 a bushel and soybeans dropped 1.9 percent to US$10.34 a bushel. The market was closed Thursday for Thanksgiving.

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