Commodities Tumble, Led by Metals, on Risk Concerns (Update2)

By Pham-Duy Nguyen


Nov. 12 (Bloomberg) -- Commodities tumbled, led by metals and energy, as investors sought to unwind high-risk bets on raw materials after prices climbed to records this year.

The UBS Bloomberg Constant Maturity Commodity Index fell as much as 2 percent after climbing to the highest ever on Nov. 7. Hedge-fund managers and other large speculators increased net- long positions, or wagers prices will rise, to a record last week in gold futures, Commodity Futures Trading Commission data showed. Speculative long positions in oil approached a record.

Investors are concerned global economies won't accelerate at the pace earlier this year and in 2006 amid turmoil in credit markets linked to the U.S. housing recession. The yen gained against 16 of the most-traded currencies as traders cut holdings of riskier assets bought with loans in Japan.

``We're seeing a general shift against risk,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``Gold, silver, and platinum are being hit because people are unwinding the yen trade.''

Gold plunged the most in 13 months, and crude oil dropped as much as 2.9 percent. Copper and most agricultural commodities also declined.

Gold futures for December delivery fell $27, or 3.2 percent, to $807.70 an ounce on the Comex division of the New York Mercantile Exchange. The percentage drop was the biggest since Oct. 3, 2006.

Before today, gold rallied in 11 of the past 12 weeks, reaching a 27-year high of $848 on Nov. 7. The metal still has climbed 27 percent this year.

`Risk Aversion'

``Risk aversion has returned to haunt the metals market,'' John Reade, an analyst at UBS AG in London, said in a report. ``Yen strength has coincided with metal-price weakness, signs that the foreign-exchange carry and long-metals positions are both seeing deleveraging.''

Crude-oil futures for December delivery declined $1.70, or 1.8 percent, to $94.62 a barrel on the Nymex. The price reached a record $98.62 on Nov. 7.

Oil earlier touched $93.54 a barrel, and gold dropped as low as $798.80. The UBS Bloomberg CMCI dropped 19.90, or 1.6 percent, to $1,251.46 at 3:32 p.m. New York time.

Signs of slowing growth in the U.S. economy dented investor confidence that oil prices will reach $100 a barrel. Rising fuel costs may have slowed retail spending growth in the U.S., the world's largest oil user, to a four-month low in October, according to a Bloomberg survey.

`Wringing Out Inflation'

``Technically, we never got to $100, and the dollar strengthened significantly,'' said Frank McGhee, head metals trader at Integrated Brokerage Services LLC in Chicago. ``You're seeing the market wringing out some of the inflation that's built up.''

Rising fuel prices that businesses and consumers took in stride earlier this year may push the weakened U.S. economy into recession.

``We are in a danger zone,'' says Nariman Behravesh, chief economist at Global Insight Inc. and a former Federal Reserve economist. ``It would take two shocks to bring the economy to its knees. We got one shock in the form of the credit crunch. Oil could be that second shock.''

Copper tumbled to the lowest price in seven months after imports fell in China, the world's largest user of the metal.

China's imports of copper and copper products fell to 204,242 metric tons in October, down 5.7 percent from 216,643 tons in September, the Beijing-based customs office said today. Before today, copper had fallen 15 percent since Oct. 1 on concern a slowing U.S. economy would reduce metals consumption.

Economy Is `Biggest Worry'

``When China's copper imports come in lower, it's bound to have a negative affect on the price,'' said Patrick Chidley, an analyst at Barnard Jacobs Mellet LLC in Stamford, Connecticut. ``The biggest worry now is the state of the economy and what that will mean for demand.''

Copper futures for December delivery dropped 3.65 cents, or 1.2 percent, to $3.109 a pound on the Comex. Earlier, the metal touched $3.035, the lowest since March 29.

Falling prices for copper, which generally moves in line with economic expansion, are an indication that growth will slow and curb demand for commodities including oil, said Jonathan Barratt, managing director of Commodity Broking Services in Sydney.

`Good Indicator'

``Copper is a good economic indicator, and with copper slumping at the moment, I just can't see that oil should be at these levels,'' Barratt said. ``Copper's actually led the way, and oil will follow down the track.''

Silver futures for December delivery fell 78.3 cents, or 5 percent, to $14.762 an ounce on the Comex. The metal still is up 14 percent this year.

Platinum futures for January delivery tumbled $35.20, or 2.5 percent, to $1,390.80 on the Nymex. The price reached a record $1,498.80 on Nov. 7.

In carry trades, investors sell currencies of countries with lower borrowing costs and buy assets with higher interest rates or the prospect of greater yields. Japan has the lowest borrowing costs among industrialized nations at 0.5 percent.

Speculative long positions in gold futures outnumbered short positions by 202,125 contracts on the Comex in the week ended Nov. 6, CFTC data showed on Nov. 9. Net-long positions rose by 3,519 contracts, or 1.8 percent, from a week earlier.

Speculative long positions in oil futures on the Nymex outnumbered short positions by 105,816 contracts. Net-long positions rose by 22,696 contracts, or 27 percent, from a week earlier. Net-long positions reached a record 127,491 on July 31.