Commodities Head for Worst Loss Since Recession of 2008

Commodities fell, capping the biggest monthly slump since 2008, as Europe’s escalating debt woes dimmed prospects for demand and drove crude oil into a bear market.

Costs to protect Spanish government bonds with default swaps rose to a record yesterday, while a Greek poll showed support for anti-austerity parties before elections next month that may presage the country’s exit from the euro. First-time claims for U.S. jobless benefits rose by 10,000 to 383,000 last week, the government said today. Slower economic growth in China also hurt metal and energy prices in May.

The European crisis is “sending all those economies into recession, slowing global demand, which is going to impact Chinese demand, which has by far been one of the largest commodity consumers out there,” Dan Denbow, a portfolio manager at the $1.8 billion USAA Precious Metals and Minerals Fund in San Antonio, said in a telephone interview. “Anytime there’s financial turmoil, that’s going to create lower economic activity. We’re clearly seeing that in the southern half of the euro zone.”

The Standard & Poor’s GSCI Spot Index of 24 raw materials dropped 1.2 percent to settle at 596.2 at 3:53 p.m. New York time. In May, the gauge tumbled 13 percent, the most since November 2008. Earlier, the measure touched 594.48, the lowest since Oct. 6.

Oil Bear

Crude-oil futures for July delivery fell 1.5 percent to settle at $86.53 a barrel on the New York Mercantile Exchange. Prices fell 17 percent this month, the biggest slide since December 2008. Yesterday, the price closed 20 percent below this year’s highest settlement, signaling a bear market.

Copper futures for July delivery slipped 0.7 percent to settle at $3.3655 a pound on the Comex in New York. This month, the price dropped 12 percent, the most since September.

In May, cotton prices dropped 20 percent, the biggest decline among GSCI components. Coffee fell 11 percent, the sixth straight monthly decline, which marks the longest slump in 31 years.

This week, the euro fell to the weakest versus the dollar in almost two years. Today, the yen climbed to an 11-year high against the European currency.

Citigroup Inc. has forecast that the euro may decline to $1.20 in the coming months and reach parity with the dollar in a year. The existing structure of the euro isn’t sustainable, according to Tom Fitzpatrick, chief technical analyst at Citigroup Global.

Risk Off

“We are seeing a ‘risk-off’ mentality,” said Natalie Robertson, a commodity analyst at Australia & New Zealand Banking Group Ltd. in Sydney. “More pressure may be coming from Europe, and the other negative factor is the dollar/euro, which is going to weigh on commodity prices.”

Gold futures fell 6 percent in May, the fourth straight monthly decline, the longest slump since October 2000. Nineteen of the GSCI components declined in May.

“Risk assets for the moment, even if they have good fundamentals, are not being bid with much aggressive behavior today,” Sterling Smith, a commodity market analyst at Citigroup Inc.’s institutional client group, said in a telephone interview from Chicago. “That’s leading to an across-the-board sell-off. The path of least resistance for most things is lower.”

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