Commodities from copper and gold to crude oil plunged as a global meltdown in financial markets broadened, with traders rushing to cash out of profitable trades and place fresh bearish bets across industrial raw-material markets.
Copper dropped as much 3.8% on the London Metal Exchange, while silver led precious metals lower with a decline of more than 7%. Benchmark crude contracts fell more than 2% before retracing some of those losses.
The heavy selloff comes as investors pulled in their horns in the wake of US data signaling a deterioration in the world’s biggest economy. In turn, that’s sparking worries that the Federal Reserve’s long-awaited pivot to more supportive monetary policy may come too late to prevent a major downturn in the US and beyond.
“It’s just widespread panic,” said Phil Streible, chief market strategist at Blue Line Futures. “We think long term these things are great investments, but it also hinges upon us not having a recession, not having the hard landing, and the Fed acting appropriately.”
For commodities like copper that are linked to industrial cycles, a hard-landing scenario would put fresh pressure on bulls who made bold bets on a surge in global demand earlier this year. Prices have already retreated more than 20% from a peak seen in May as investors bailed out, and Monday’s fresh bout of selling took prices to the lowest in nearly four months. Mounting worries about economic growth across commodities markets have prompted hedge funds to turn predominantly bearish on a basket of key contracts for the first time since 2016.
“Markets like oil and copper appear to be pricing in a recession, which equity and bond markets are doing as well,” said Matthew Schwab, head of investor solutions at Quantix Commodities, a Greenwich, Connecticut-based hedge fund
Gold – which is up 16% this year and would typically benefit during bouts of economic weakness – was also hit hard as investors closed out trades to cover losses elsewhere. That’s a common consequence during large-scale selloffs, and analysts said that the precious metal’s status as a haven should soon reassert itself if the turmoil continues.
A slump in the dollar could also boost gold and other commodities priced in the currency by expanding purchasing power for consumers in key markets like China.
“Commodities are getting hit by this risk-off event,” said Ryan Fitzmaurice, a senior commodities strategist at Marex. “But looking out on the horizon, a weaker US dollar and rate cuts could provide support for the asset class.”
Spot bullion dropped as much as 3.2% to $2,364 an ounce, and was trading at $2,390.52 as of 2:40 p.m. in London. Copper traded 2.4% lower at $8,839 a ton in London as metals from aluminum to zinc dropped on the exchange. Brent crude was down 0.8%.
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With assistance from Yvonne Yue Li.