THE DOLLAR surged to a two-year high against the pound and a six-month peak against the euro yesterday, as fears about spreading economic gloom triggered a sell-off in commodity markets.
Against sterling, the US currency notched up its 11th consecutive day of gains - its longest uninterrupted rise in more than 35 years - as markets became increasingly convinced that the US was best-placed to weather the global downturn.
The strong dollar rebound further undermined sentiment in the gold market, where prices fell below $800 for the first time this year to just $774.90 a troy ounce, almost a quarter lower than early March's record $1,030.80.
Prices for crude oil, platinum, copper, aluminium, corn and soya beans have also retreated recently from records hit this year, prompting speculation that commodity prices have reached a turning point.
"The golden age when commodity prices could only go up is gone," said Marco Annunziata, chief economist at Unicredit.
Military tensions between Russia and Georgia have offered little support to the price of gold, while oil prices have continued to fall in spite of interruptions to two key pipelines carrying crude from the Caspian Sea to Turkey.
The long-running surge in commodities and resulting inflationary pressures had been a main factor in slowing global economic activity - playing a bigger role than global financial turmoil, for instance, in the euro zone.
In the second quarter, the euro-zone economy contracted for the first time since the launch of the euro in 1999, while Japan's economy shrunk by 0.6 per cent, its worst performance for seven years. In the same period, the US staged at least a modest recovery.
Analysts were divided on the outlook for commodities. Lehman Brothers believed oil prices had peaked, while Goldman Sachs repeated its forecast that they would hit $149 by the year-end.
The Reuters-Jefferies CRB index, a benchmark for commodities, fell more than 2.5 per cent to its lowest level since late March. The index has fallen almost 20 per cent since an all-time high in July, but is still 22 per cent higher than a year ago.
But several analysts believed it was too early to give up on commodities, saying the recent sharp falls were a correction after a breathless rally and the demand outlook remained robust.
"For oil it is a correction that we are seeing," said Michael Lewis, global head of commodities at Deutsche Bank.
"The inventory on oil makes us feel this is not the market going back to $80."
A larger-than-expected drop in US crude and gasoline inventories triggered a short-lived rally in crude oil prices on Thursday.
"In terms of oil, we don't think the fundamentals are that bearish," Lewis said. "Chinese demand - we still feel that is pretty strong."
Agricultural commodities were not spared either. September corn futures were trading at $5.38 per bushel in electronic trading, down 3.5 per cent or 19¾ cents from Thursday's Chicago close.
European grain markets opened weaker in sympathy with Chicago markets.
French November wheat was down 0.75 to €196.00 per tonne, while London November wheat was down half a per cent at £127 a tonne in light volume of 40 lots.
"Agricultural products are basically catching up with the falls in other markets," a commodity broker in Perth said.
Soft commodities tracked the falls, too. London December cocoa fell £24 to £1,463 a tonne.
"The stronger dollar is having an effect on prices in the short-term," a London-based robusta coffee futures trader said.
"We're in long liquidation mode."
- (Financial Times service/Reuters)
