Glenys Sim and Dave McCombs – “Gold, Platinum Lead Commodities Into Bear Market on Growth Risk”

Gold, Platinum Lead Commodities Into Bear Market on Growth Risk

Glenys Sim and Dave McCombs | August 12, 2008

Gold, platinum and silver plunged to their lowest in more than seven months, leading commodities into a bear market, on concern a spreading global economic slowdown will reduce demand for raw materials.

Precious metals also slumped as crude oil prices fell and the dollar gained, reducing their appeal as an inflation hedge and alternative investment. Gold has tumbled 22 percent from its record $1,032.70 on March 17. Platinum and silver are down 36 percent and 33 percent from their peaks.

Commodities, as measured by the Standard & Poor’s GSCI index, have lost 21 percent from a record July 3, descending into a bear market. Crude-oil prices are down 23 percent from a peak of $147.27 a barrel July 11, on signs a U.S. economic slump will extend into 2009. Corn, wheat and soybeans are in bear markets after sliding from highs set this year.

“We’re seeing a reconfiguration of the markets in the last 48 hours related to the realization that the slowdown in the U.S. has broadened across the globe,” Darren Gibbs, chief economist at Deutsche Bank AG in Auckland, said by phone today. “I’d imagine all sorts of trades are being unwound.”

Tumbling raw-material prices may erode profits at BHP Billiton Ltd., the world’s largest mining company, and Exxon Mobil Corp., the biggest publicly listed oil company. Global energy and raw-materials stocks, last year’s best-performing industries, fell into bear markets this month.

‘Losing Luster’

The GSCI index surged 41 percent in the first half as equity markets and a declining dollar prompted a “buying orgy” by investors, Paul Touradji, founder of the $3.5 billion hedge fund Touradji Capital Management, said in March.

Gold fell as much as 2.6 percent to $802.34 an ounce and traded at $810.01 an ounce at 3:50 p.m. Singapore time. Platinum lost as much as 3.7 percent and silver 4.5 percent. The dollar traded near a 5 1/2-month high against the euro today and close to a seven-month high against the yen.

“The dollar had an enormous spike in the past couple of weeks, so the precious metals are losing their luster,” Peter McGuire, managing director at Commodity Warrants Australia, said today by phone from Sydney.

The U.S. economy, the world’s largest, will grow at an average 0.7 percent annual pace from July through December, half the gain in the first six months of the year, according to the median forecast of 50 economists surveyed by Bloomberg News from Aug. 1 to Aug. 8.

Boom Slows

Household spending, which has grown every quarter since 1992, is projected to stall in the last three months of the year as the impact of tax rebates fades, wages fail to keep up with inflation and property values fall, it showed.

The commodity boom is fading, says Michael Aronstein, chief investment strategist at Oscar Gruss & Son Inc. in New York.

“I think it’s over in terms of the investment hypothesis, at least for the next several years,” Aronstein said in an interview Aug. 5. “I think the demand destruction, both in the developed world and the developing world is going to be quite a bit greater than people assume.”

Investor Jim Rogers, 65, who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce, differs. The fundamentals for commodities are “astoundingly” good and the bull market “has a long way to go,” he told a conference in Australia Aug. 6.

Fund selling of gold, the Australian and New Zealand dollars may have spurred today’s price drop in precious metals, said Toshihiko Sakai, head of trading in foreign-exchange and financial products at Mitsubishi UFJ Trust & Banking Corp.

Fund Sales

“Hedge funds are probably unwinding long positions in commodities and high-yielding currencies, and short positions in low-yielding currencies,” said Sakai in Tokyo. “These position adjustments are likely to continue for now.”

Gold fell $20 an ounce in less than an hour today as the Australian dollar dropped 0.9 percent against the U.S. dollar, Bloomberg data shows.

“We’ve been surprised by the strength of the U.S. dollar rally over the past month,” Goldman Sachs JBWere Pty analysts wrote in a report. “Nevertheless, we believe the threat of rising inflation and the climate of general economic uncertainty remains constructive for gold in the medium term.”

To contact the reporters on this story: Glenys Sim in Singapore at gsim4@bloomberg.netDave McCombs in Tokyo at

Published in: on August 12, 2008 at 8:31 PM  Leave a Comment  

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