Selling engulfs energy, agriculture and metals

Gold and crude oil scaled new peaks on Monday but an avalanche of selling swept across metals, energy and agricultural commodities this week in the most significant pull-back of the present bull run.

Risk reduction was a driver of the sell-off as funds locked in profits and moved into the safety of cash before the Easter break.

A significant trade for hedge funds this year has been to sell the dollar and to buy commodities but dealers said some of these trades were being reduced and that further liquidation of speculative positions was likely.

There was debate over whether this week’s action marked a temporary correction or a bubble bursting after unprecedented new investor inflows this year.

Kevin Norrish, of Barclays Capital, said there was no single magic key explaining commodity movements this year and that fundamental factors had driven some sharp divergences in prices.

“There has been no rising tide that has lifted all ships,” said Mr Norrish. “The continuation of supply side concerns across many commodities has tended to dominate concerns on potential demand side effects.”

Gold, which fell 2.5 per cent to $920.30 a troy ounce on Thursday, was the most notable casualty of the sell-off, enduring its worst one-day percentage fall in more than 17 years on Wednesday.

After hitting a record $1,030.80 on Monday, gold sank 7.3 per cent over the week as the dollar strengthened and credit fears appeared to ease.

Gold’s fall was seen as a buying opportunity for some jewellery makers. John Reade, of UBS, noted “very strong demand from jewellery clients for gold and platinum”, particularly from Indian and Swiss buyers.

Over the week, silver which is more volatile than gold, dropped 18.6 per cent to $16.86 a troy ounce, while palladium fell 13.9 per cent to $438 a troy ounce.

Platinum lost 10.4 per cent at $1,855 a troy ounce, bolstered by concerns about potential power supply problems for mining companies in South Africa after Eskom, the utility, imposed rolling blackouts across the country

In energy markets, crude oil prices hit a record $111.80 a barrel on Monday but over the week, the benchmark Nymex WTI contract fell 7.6 per cent while Brent lost 5.5 per cent.

On Thursday, short covering before Easter helped the benchmark WTI contract recover from $98.65, its lowest level since February 26, to end down 70 cents at $101.84 a barrel. ICE May Brent was off 34 cents at $100.38 a barrel.

Agricultural commodities suffered widespread speculative selling this week with CBOT May wheat down 17.3 per cent to $9.85 a bushel, while CBOT May corn fell 9.3 per cent to $5.07¼ a bushel and CBOT May soyabeans lost 10.8 per cent at $12.07 a bushel.