SINGAPORE (Reuters) - Commodity markets took another beating in Asian trade on Thursday as investors nervous about the economy cashed in on recent record prices, shifting money to safe-haven U.S. government bonds.
Oil, gold and copper, down as much as 10 percent since the start of the week, came under fierce selling pressure as investors sought to protect profits.
But prices remain well above where they started the year, and have strongly outperformed equities.
“I think we will probably see further falls in commodity prices,” said analyst Cai Luoyi at China International Futures.
“It is obvious that investors who cut their holdings due to concerns on the U.S. economy are not likely to build up long positions again in the near term.”
Instead investors have been piling into cash and cash equivalents and the yield on the three-month U.S. T-bill US3MT=RR fell to 50-year lows of 0.56 percent on Wednesday.
“It is the absolute flight to safety,” said Bryan Taylor,
chief economist with Global Financial Data in Los Angeles.
Even after losses in the past three days, commodities are still outperforming equities this year.
“A lot of these products have seen a pretty decent run up and even though prices are down 10 percent in some cases, we are still up a fair bit from the start of 2008,” said Justin Wilks, director of trading at Australian fund Global Commodities.
Spot gold XAU= is up 12 percent from the start of the year, London Metal Exchange copper MCU3 is up around 18 percent and U.S. oil CLc1 is around 6 percent in the black, despite sliding almost 10 percent since the start of the week.
In contrast, equity markets around the world are weaker. The Dow Jones Industrial Average .DJI is down almost 10 percent this year, the Nikkei .N225 has lost over 20 percent and London's FTSE 100 .FTSE has shed 14 percent.
Tight fundamentals in many commodity markets will insulate prices from the worst effects of a decline in global economic growth in 2008-09, the International Monetary Fund said.
Past economic slowdowns had caused commodity markets to fall sharply, but the IMF noted “a disconnect between commodity prices and the ongoing slowdown of the global economy.”
“Unless there is a substantial global downturn, however, the extent of easing may be small, given the current tight balances in some commodity markets,” the IMF said. [nN19352372]
GOLD AT 1-MONTH LOW
Spot gold tumbled to $920.30, its lowest in a month, down from $944.20/945.00 late in New York on Wednesday and more than 10 percent off Monday’s record high of $1,030.80 an ounce.
“We have to see whether the funds will continue selling. If they do, of course there is a possibility that it will go down and test $900,” said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
U.S. crude CLc1 fell $1.01 cents to $101.53 a barrel, about 9 percent off the record $111.80 hit on Monday.
Oilseed and edible oil markets have been hard hit by falling prices. Chinese firms have defaulted on cargoes of soyoil, soybeans and palmoil as futures prices slumped from record highs in the past two weeks. [nHKG335657]
CBOT soy Sc1 has dropped 20 percent since early March.
Industrial metals took a drubbing in Shanghai with zinc SZNM8 — used to protect steel from rust — dropping by its 4 percent daily limit to 19,420 yuan ($2,748).
Its London Metal Exchange counterpart MZN3 was off by $20 at $2,390 a tonne, having shed nearly 5 percent on Wednesday.
Copper in Shanghai SCFM8 dropped 3 percent, while London futures extended the previous session’s 3 percent slide, falling $95 to $7,880.
Just a week ago the metal hit an all-time peak of $8,820 as a wall of fund money threatened to send prices to $10,000.
Editing by Michael Urquhart