March 20 (Bloomberg) -- Commodities plunged, heading for the biggest weekly decline in more than 50 years, on speculation a slowing global economy will curb demand for energy, metals and grains.

The Reuters/Jefferies CRB Index of 19 commodities has tumbled 8.4 percent this week, which would mark the largest decline since at least 1956. After reaching records this week, gold plummeted more than $110 an ounce and crude oil tumbled $11 a barrel.

``We started to see a speculative frenzy in commodities,'' said Brian Hicks, who helps manage $1.5 billion at U.S. Global Investors Inc. in San Antonio. ``Growth is going to be quite muted, and that does not bode well for commodities.''

The International Monetary Fund said this week that slowing global growth signals commodity demand will ``soften.''

Before this week, the weighted UBS Bloomberg Constant Maturity Commodity Index of 26 futures gained 20 percent in 2008, reaching a record on Feb. 29. The gauge climbed in each of the past six years, more than tripling in value.

The rally may be coming to an end as the U.S., the world's largest economy, slips into a recession, damping global expansion, said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois.

``Commodities were a bubble'' that is now bursting, Kaplan said. ``Prices will go lower than you can believe.''

The CRB index fell 7.03, or 1.8 percent, to 381.27 at 12:40 p.m. New York time. On March 17, the gauge plunged 4.6 percent, the most in five decades. It dropped 4.1 percent yesterday.

`Recession Fears'

``Global-recession fears are causing selling pressure in all commodities,'' said James Mound, head analyst for MoundReport.com, a commodities newsletter, in Palm Coast, Florida. ``The markets are focusing on want-based items instead of need-based items.''

Investor demand for commodities led to a ``buying orgy,'' Paul Touradji, founder of the $3.5 billion hedge fund Touradji Capital Management, told clients on March 10. Commodities ``have all gone parabolically higher on frenzied money flow,'' he said.

A slumping dollar and less-attractive returns on equities and bonds boosted the appeal of commodities as a hedge against inflation and an alternative investment, said Michael K. Smith, president of T&K Futures & Options in Port St. Lucie, Florida. Investors are now selling raw-material futures to raise cash, he said.

Margin Calls

``There's a lack of liquidity to cover margin calls,'' Smith said. ``There's a panic in the market that's taken hold very quickly. We could see commodity prices continue to tumble.''

Gold futures for April delivery fell $24.30, or 2.6 percent, to $921 an ounce on the Comex division of the New York Mercantile Exchange. The price reached a record $1,033.90 an ounce on March 17. The metal plunged $59 yesterday.

The dollar has rebounded this week from a record against the euro and a 12-year low against the yen.

Crude-oil futures for May delivery fell $1.90, or 1.9 percent, to $100.64 a barrel on the Nymex. The price soared to a record $111.80 a barrel on March 17.

Oil probably will fall toward $90 a barrel this spring as the slowing economy in the U.S. encourages traders to exit commodity markets, Goldman Sachs Group Inc. analysts including Jeffrey Currie said in a report today.

Dollar's Rally

``The oil-price slump, along with all the other commodities, resulted from the dollar staging a rally, so the large funds flowed out of the commodities complex,'' said Victor Shum, senior principal at consultants Purvin & Gertz Inc. in Singapore. ``Investors have found a trigger to focus more on fundamentals.''

Wheat and cocoa tumbled more than 7 percent today. Soybeans and corn dropped almost 4 percent. Among the 26 commodities in the UBS Bloomberg index, only hogs posted a gain this week.

There are 361 commodity funds that had $98 billion in assets as of Feb. 28, compared with 345 funds with $80 billion at the end of 2007, James Proudlock, commodity product head for Europe, Middle East and Asia at JPMorgan Securities Ltd., said at a sugar conference yesterday in Geneva.

The money flowing into commodities was ``absolutely enormous,'' Proudlock said.

To contact the reporters for this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net; Millie Munshi in New York at mmunshi@bloomberg.net

Last Updated: March 20, 2008 12:47 EDT