Commodities Fall Most in 11 Weeks in ‘Panic Selling’ on Europe

Gold Declines Below $1,600
Gold bars are arranged for a photograph at Bullion Trading LLC in New York. Photographer: Paul Taggart/Bloomberg

Commodities posted the biggest drop in almost 11 weeks, led by gold and crude oil, as concerns mounted that European leaders are failing to stem the region’s debt crisis, eroding demand for energy, metal and crops.

The Standard & Poor’s GSCI index of 24 raw materials declined 4.1 percent to settle at 621.93 at 3:43 p.m. New York time, swinging to a loss in 2011. Gold closed at the lowest price in five months, with silver at the cheapest since February. Oil slid more than 5 percent.

German Chancellor Angela Merkel said there is no easy solution to the European crisis after rejecting an increase in the upper limit of funding for the region’s permanent bailout mechanism. The euro fell below $1.30 for the first time since January. The Federal Reserve yesterday refrained from taking new measures to spur growth.

“The panic selling started in gold and spread to oil and base metals because investors are disappointed there’s not enough being done by central banks globally,” Nic Johnson, who helps manage $30 billion in commodity assets at Pacific Investment Management Co. in Newport Beach, California, said in a telephone interview. “Liquidity is limited.”

‘Macro Malaise’

Only cattle posted a gain among components in the GSCI index. The gauge has dropped 1.6 percent this year and is down 18 percent from a 32-month high of 762.22 in April. Today’s decline was the biggest since Sept. 22.

“The markets are sharply lower across the board as we are seeing more of the same ‘macro malaise’ at work,” Edward Meir, an analyst at INTL FCStone Inc. in New York, said in a report. “Most markets are taking their cue from the struggling euro.”

Gold futures for February delivery fell 4.6 percent to close at $1,586.90 at on the Comex in New York, the lowest settlement since July 13. Earlier, the metal touched $1,565.70, the lowest intraday price since Sept. 26.

Gold has dropped 18 percent from a record $1,923.70 on Sept. 6. The metal may tumble to $1,400 “in a hurry” after closing below its 200-day moving average, Dave Lutz, the head of exchange-traded fund trading and strategy at Stifel Nicolaus & Co. in Baltimore, said in an e-mail.

Prices are tumbling because investors are in a “risk-off” mode, Lutz said. Gold took an “escalator up,” and will be in an “elevator down,” with the “first stop” at $1,500, followed by a slump to $1,400 by as early as the end of January, he said.

Silver futures for March delivery dropped 7.4 percent to $28.935 an ounce on the Comex, the lowest settlement since Feb. 3. The metal has plunged 42 percent from a 31-year high of $49.845 on April 25.

‘Forced Selling’

“The kind of waterfall decline we have seen in gold indicates a significant degree of forced selling emanating from the hedge-fund world,” James Dailey, who manages $215 million at TEAM Financial Management LLC in Harrisburg, Pennsylvania, said in a telephone interview.

Oil fell the most since September as the Organization of Petroleum Exporting Countries agreed to raise its output ceiling.

On the New York Mercantile Exchange, oil futures for January delivery declined 5.2 percent to $94.95 a barrel, the biggest drop since Sept. 22.

A measure of copper, aluminum, nickel, lead, zinc and tin on the London Metal Exchange fell 4.3 percent, the most since Oct. 20, to 3,164.9. The gauge has dropped 25 percent this year.

Cotton dropped to a 15-month low. This year, the fiber has tumbled 41 percent, the biggest decline among GSCI components.

“What’s going on in Europe is scaring a lot of people,” Scott Joss, the president of ClearTrade Commodities in Chicago, said in a telephone interview. “I am looking for the dollar to push higher into the first quarter, which will put a lot of pressure” on raw materials, he said.

Wheat tumbled to the lowest since July 2010 in Chicago. Soybeans dropped to a 14-month low, and corn fell to the cheapest in 10 weeks.

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