CHICAGO From gold to oil to grains, commodities tumbled on Thursday in a wave of selling as investors cashed out, taking profits at near-record prices and reducing risk from positions built on borrowed money.
The decline was the biggest ever as measured by the Reuters/Jefferies CRB commodities index .CRB since its inception 50 years ago. The index, which includes crude oil, gold, wheat, cattle and corn, fell 8.4 percent on the day.
Investors are jittery over the U.S. economy amid a growing consensus that a recession has begun. Many also remain worried about a credit crunch stemming from a distressed mortgage market hammered by record foreclosures, even after this week's interest rate cut and other steps by the U.S. Federal Reserve.
"Little attention was paid to the fact that the sector has been historically sensitive to growth prospects, particularly from the U.S., which for all the talk about Chinese demand, still remains the ultimate end-consumer for many of the commodities in question," MF Global analyst Edward Meir said in a note to clients.
"In addition, the recent selloff may also be attributable to the fact that we are seeing a massive round of deleveraging taking place across many markets," he added.
He said hedge funds could be lightening up on commodities to support positions that "may be under water," or else they may be raising cash to meet more stringent lending requirements imposed on them by their banks.
U.S. gold prices fell as much as 4 percent to the lowest levels in 4-1/2 weeks, adding to Wednesday's 6 percent loss, the biggest one-day percentage loss in nearly two years.
Investors have been tapping the bullion market for cash to cover losses in other financial markets. A rebound in the dollar and continued heavy losses in energy markets combined to pressure gold futures.
Spot gold slipped to $909.90/$910.70 a troy ounce at 2112 GMT (5:12 p.m. EST), down from $944.20/$945.00 on Wednesday.
Fund managers said the sell-off could have been triggered by the Fed's decision on Wednesday, to cut interest rates by only three quarters of a percentage point to 2.25 percent. Many had hoped the Fed would cut rates by a full percentage point.
SELLOFF EXTENDS TO GRAINS
U.S. grains futures also tumbled, with corn and soybeans falling as much as the maximum allowed in a day.
At the Chicago Board of Trade, the world's largest grain exchange, corn futures fell by as much as the 20-cent per bushel trading limit, soybeans by the 50-cent limit and soy oil by the 2.00-cent per lb limit.
"In the big picture you have commodities getting hit because funds are unwinding long commodities/short dollar spreads," said analyst Vic Lespinasse for Illinois Grain.
CBOT May corn ended 20 cents, or 4 percent, lower at $5.07-1/4 a bushel, while May soybeans fell 50 cents, or 4 percent, at $12.07. May wheat was down 86-1/2 cents, or 9 percent, at $9.87-1/2.
Crude oil fell sharply, extending Wednesday's 4.5 percent drop, as investors cashed out of the market. But the losses were pared by news of big-volume imports by China.
"China is increasing crude imports to replenish stocks because it is experiencing extremely cold weather. China's economy is not slowing down and is still a bullish factor for crude oil prices," said analyst Phil Flynn of Alaron Trading.
At the New York Mercantile Exchange, May crude settled 70 cents lower at $101.84 a barrel, pulling back from a low of $98.65.
U.S. copper futures fell, weighed by profit taking sparked by a rebound in the dollar. Concerns over the economic outlook and a potential loss in demand hung over the market.
May copper settled down 6.00 cents at $3.5735 a lb.
(Additional reporting by Sam Nelson in Chicago, Pratima Desai and Nigel Hunt in London; Editing by David Gregorio)