Oil, gold and silver plummet on global economy fears

05/07/2011 11:49


Oil, gold and silver nose-dived yesterday, as investors sold commodities over worries about the health of the global economy.

It was the biggest drop in the cost of raw materials in almost two years, amid negative economic data that showed the US jobs market is struggling to recover.

Copper, tin, cocoa, coffee, sugar and lead were among others to take a hit - signalling a possible downturn just one day after Glencore, the commodities giant, unveiled the largest ever London flotation. Brent crude futures lost more than $10, or 8.6pc, to settle at $110.80 per barrel per barrel in London, a few weeks after warnings that high prices would strangle growth.

In New York, the benchmark West Texas Intermediate oil future dropped below $100 for the first time since tensions in the Middle East caused the oil price to hit $127 per barrel.

Industry players from Royal Dutch Shell to the oil cartel Opec have noticed that demand for fuel has been dampened by the high prices of recent weeks. American motorists have been feeling the pinch, with gasoline prices at $4 per gallon.

A drop in the price of crude oil will take a while to feed through to drivers, but they will start to see the cost of petrol reduce if the fall is sustained.

Myrto Sokou, of Sucden Financial, put the reason for yesterday’s falling prices down to “renewed concerns about oil demand in China and the US”.

Oil was by no means the only commodity to suffer, as investors sold off metals across the board. Silver has been the biggest faller in recent days. Now below $38 per ounce, it has dropped by 28pc this week.

Only last month it was at a 31-year high of almost $50 an ounce.

Neither was gold immune from the rout, dropping 2.1pc to $1,485.24 an ounce, while platinum fell 3.2pc to $1,764.8 an ounce.

There have been a series of warnings in recent weeks from experts that this year’s spikes in commodity prices have not been supported by fundamentals of supply and demand. Analysts at Goldman Sachs warned its clients to “sell oil, cotton, copper, soybeans and platinum” in a surprise note last month. “We now recommend an underweight allocation to commodities on a three-to-six-month horizon,” it said.

Another alarm bell came from the International Energy Agency, which cautioned it had begun to see the first signs of a downturn in demand.

“Preliminary January and February data suggest that high prices are already starting to dent demand growth,” the energy watchdog said.

However, some think the rout is more of a short-term correction than a turn in the commodity super-cycle. Tom Gidley-Kitchin, mining analyst at Charles Stanley, said: “There’s no doubt that commodities became extended but I’m not seeing anything approaching panic. I’ve no feeling that this is going to be more than just a slight pullback yet, but if the news continues to deteriorate, I would assume that markets will follow that.”


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