Volatility made an unwelcome return to commodity markets yesterday as base metals endured sharp falls and precious metals retreated after gold sank below support levels.

Traders said the mood remained nervous and because of light trading volumes, shifts in sentiment were translating into dramatic price action.

Copper sank 7.1 per cent to a low of $7,340 a tonne before some opportunistic buying prompted a limited recovery, with the three-month contract trading 3.7 per cent lower at $7,607.

Sentiment continues to be affected by talk that an auction next week by China’s State Reserves Bureau could involve up to 100,000 tonnes of copper.

The London Metal Exchange’s move to longer trading hours today to cover the Asian session generated several hundred trades on its electronic Select system and an LME spokesman said liquidity would build gradually.

Nickel dropped 9.6 per cent to a low of $19,800 before recovering to trade 4.3 per cent lower at $20,550 a tonne.

Aluminium fell 1.9 per cent to $2,600 a tonne while zinc sank 4.4 per cent to $3,510 a tonne.

Gold fell 2 per cent to $630.60 after sinking as low as $620.90 a troy ounce.

John Reade, at UBS, said gold’s decline below support at $638 had prompted a downward revision to his three-month price forecast to $650 from $750.

With no immediate trigger for short-term gains, Mr Reade said he expected bullion to trade in a wide, choppy range over the summer, but UBS is also forecasting a recovery with gold expected to average $750 next year.

Gold’s loss of momentum is also expected to affect other precious metals. Silver fell 3.3 per cent to $12.08 a troy ounce. Platinum lost 1.7 per cent at $1,227 a troy ounce but sentiment was bolstered by Johnson Matthey’s upbeat outlook statement on demand.

The oil market reversed early declines after the latest US inventories data showed demand remaining robust.

Moving into the summer driving season, gasoline demand rose 0.9 per cent to 9.32m barrels a day.

Gasoline stocks rose 0.8m barrels compared with the consensus forecast for a 1.1m barrel build. Nymex July unleaded gasoline firmed up 0.5 cents at $2.1500 a gallon.

Total US product demand rose 4.8 per cent to 21.1m barrels a day.

Nymex July West Texas Intermediate gained 14 cents at $71.43 a barrel while IPE July Brent added 3 cents at $70.44 a barrel. The Energy Information Administration said crude stocks rose by 1.6m barrels compared with a consensus forecast for a decline of 0.9m barrels.

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