March 20 (Bloomberg) -- Gold headed for its biggest weekly drop in 25 years, leading a drop in commodity prices, after the dollar rallied and concern mounted a U.S.-led slowdown in the global economy will reduce consumption of raw materials.

Oil fell below $100 a barrel for the first time since March 5, soybeans erased this year's gains and cocoa headed for its steepest decline in more than five years. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials is having its worst week since at least 1997, led by declines in silver, cocoa and sugar.

``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.''

Gold in London has plunged 11 percent from its record $1,032.70 an ounce on March 17 after the Federal Reserve cut its overnight-lending rate less than expected by 75 basis points to 2.25 percent. The dollar has recovered 3 percent from an all-time low against the euro and rallied almost 4 percent from a 12-year low against the yen.

Commodities have advanced in each of the past six years, driven by demand from China seeking to feed its population and power its expanding economy. The dollar's slide has boosted demand for raw materials, which become cheaper for buyers holding other currencies, while some investors are seeking higher returns following a slump in equities.

`Absolutely Enormous'

The money flowing into commodities is ``absolutely enormous,'' James Proudlock, commodity product head for Europe, Middle East and Asia at JPMorgan Securities Ltd., said at a sugar conference yesterday in Geneva.

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, he said.

The rally, according to Paul Touradji of the $3.5 billion hedge fund Touradji Capital Management LP, was a ``buying orgy'' that had inflated prices and increased the risks of a collapse.

Commodities ``have all gone parabolically higher on frenzied money flow,'' New York-based Touradji wrote to clients March 10. ``Unless that money flow continues ad infinitum, in which case prices would go to infinity, then the fundamentals had better be improving as quickly as prices have been, otherwise there is nothing else to keep the markets at these levels.''

Good for Nothing

The UBS Maturity Commodity Index has slumped almost 12 percent from a record Feb. 29. The gauge dropped 3 percent as of 12:23 p.m. in London, the fourth drop in five sessions.

``A protracted slowdown is ultimately not good for commodities as people won't have enough money to buy anything,'' said Hong Kong-based Dick Poon, manager of the precious metals trading desk at Heraeus Ltd., a unit of processor Heraeus Holding GmbH in Germany.

Gold for immediate delivery dropped as much as 4.1 percent to $905.41 an ounce, the lowest since Feb. 19, and traded at $920.65 as of 12:53 p.m. in London. The metal's 8.3 percent drop this week would be the biggest since March 1983. The U.K. and U.S. are on holiday tomorrow.

Gold may slump to $840 by April, said Michael Lewis, Deutsche Bank AG's head of commodities research in London.

Oil soared to a record this year even as analysts forecast that consumption would increase less than in 2007. Crude oil for May delivery fell as much as $3.62, or 3.5 percent, to $98.92 a barrel on the New York Mercantile Exchange, and traded at $99.26 as of 12:18 p.m. in London.

U.S. prices are likely to fall toward $90 a barrel this spring as the country's slowing economy encourages traders to exit commodity markets, Goldman Sachs Group Inc. analysts including Jeffrey Currie wrote in a report today. Deutsche Bank's Lewis said prices will be $90 by next month.

Fundamental Focus

``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.''

Copper declined to its lowest in a month on the London Metal Exchange on concern the reduction in borrowing costs won't stop the U.S. from slipping into a recession. Corn and soybean futures in Chicago extended losses as the dollar's rally reduced the appeal of commodities as an alternative investment.

Cocoa futures for May delivery dropped $243, or 9.6 percent, to $2,290 a metric ton at 8:56 a.m. on ICE Futures U.S., the former New York Board of Trade.

To contact the reporters for this story: Glenys Sim in Singapore at gsim4@bloomberg.net; Claudia Carpenter in London at ccarpenter2@bloomberg.net.

Last Updated: March 20, 2008 09:12 EDT