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Oil, gold, copper dive on demand fears

  Everything from copper and oil to gold and coffee were battered by sharp selling on Friday as commodity markets continued to be swept up in the global financial crisis.

 

Copper prices are down around 24% so far this week, gold headed for its biggest monthly percentage decline since 1983 and oil hit a 17-month low as demand fears intensified. “The recession will be a global one and it will be pretty nasty,” said Sean Corrigan, chief investment strategist at Diapason Commodities Management. “We now have financial and real economic problems interacting and making each other worse and in that situation people need a bit of convincing that commodities are going to see much of physical demand in the near future,” Corrigan said.

Gold fell to $699.40 an ounce by 1:15 p.m., down from $722.50 late in New York on Thursday. In early trade it touched a fresh 13-month low of $680.80.

“Gold is following the dollar and oil,” Wolfgang Wrzesniok-Rossbach, head of sales at precious metals trading house Heraeus, said. “The physical demand we are seeing is not enough to stem the tide here.” Gold has slipped some 20% from a month ago, pressured by a recovery in the dollar and a sharp slide in oil prices. The dollar hit a fresh two-year high against the euro as falling share prices in Asia and Europe prompted investors to seek safety in the US currency.

Oil slid almost $5 a barrel as gloom about a global economic downturn that is sapping fuel demand took the steam out of an OPEC agreement to cut output. US light crude for December delivery traded down $4.48 at $63.36 a barrel, after touching a low of $62.85 -- its lowest since May 2007. Prices have plunged more than 50% from its record high above $147 a barrel in July.

“Supply responses to this fall in commodity prices are stacking up fast in the form of production cuts, and deferrals of new projects,” said a Barclays Capital report. “However, for now such developments are gaining little traction in markets dominated by demand concerns.”

Ministers of the OPEC agreed to take 1.5 million barrels a day of crude, about 5% of its supply, off the world market. “Until we see the final spitting out of bad positions and some calm returning and rationality being resumed it is impossible to predict where commodity prices could go,” said Diapason’s Corrigan. “Arguably this is setting the stage for a rally whenever the world economy comes through the slump that it undoubtedly will undergo,” he added. London Metal Exchange copper for delivery in three months fell 9.3% to a three-year low of $3,665 a ton.

The dollar hit a fresh two-year high against the euro as falling share prices in Asia and Europe prompted investors to seek safety in the US currency. Oil slid almost $5 a barrel as gloom about a global economic downturn that is sapping fuel demand took the steam out of an OPEC agreement to cut output. US light crude for December delivery traded down $4.48 at $63.36 a barrel, after touching a low of $62.85 -- its lowest since May 2007.

Prices have plunged more than 50% from its record high above $147 a barrel in July. “Supply responses to this fall in commodity prices are stacking up fast in the form of production cuts, and deferrals of new projects,” said a Barclays Capital report. “However, for now such developments are gaining little traction in markets dominated by demand concerns.”

Copper and zinc trading on the Shanghai Futures Exchange was suspended for a day after falling by their daily limits for three days running. Trade will resume on Monday. Signs that China was increasingly out of the market for imported raw materials as domestic economic growth slows cast ever deeper shadows over base metals. “The super cycle has come to an abrupt end,” said Jose Pablo Arellano, head of Chile’s Codelco, the world’s biggest copper producer and a big exporter to China.

Sugar and coffee futures slid to multi-month losses and risked further falls, traders said. Benchmark December white sugar futures touched a 10-month low, basis front month, of $295.6 per ton.

ICE front-month raw sugar fell to a 4-month low of 10.44 cents a lb. Front month arabica coffee touched a 17-month low of $1.063. London January robustas were down $85 to $1,634 per ton. Chicago Board of Trade soybean futures for November delivery eased to $8.51-1/4 a bushel, December corn fell 4.29% to $3.73 and wheat eased to $5.03 a bushel. (Reuters)