Metal prices plunge, led by gold

Markets contract, draw fewer buyers

May 16, 2006|By BLOOMBERG NEWS

NEW YORK -- Led by gold's biggest decline since 1993, metal prices plunged yesterday over concern that a speculative rally that sent commodities to record highs might be overdone.

Gold for immediate delivery declined $35.10, or 4.9 percent, to $679.10 an ounce in London, its biggest drop since August 1993. Silver for immediate delivery in London lost $1.15, or 8 percent, to $13.22 an ounce, the biggest decline since April 24.

Copper for delivery in three months on the London Metal Exchange fell $270, or 3.2 percent, to $8,190 a metric ton, the biggest drop since April 27. The metal is up 86 percent this year, more than double the price of a year ago. As many as 6,733 lots of 25 tons were traded, topping the daily average of 5,455 lots.

Copper for delivery in July on the Comex division of the New York Mercantile Exchange dropped 11.75 cents, or 3 percent, to $3.7465 a pound, also the biggest drop since April 27.

Zinc declined the most since October 2004, aluminum lost the most in three months and copper dropped the most in two weeks.

Crude oil slid 3 percent, trading below $70 a barrel in New York.

Shares of mining companies such as BHP Billiton tumbled, and emerging-market stocks headed for their biggest decline in two years.

"Markets are simply way overdone, overbought and running out of new buyers at these levels," said Michael Guido, director of hedge-fund marketing and commodity strategy at Societe Generale SA in New York. "Most metals are in dire need of a healthy correction in order to bring sidelined players back into the game. Underlying rate concerns in China, plus small signals of demand destruction are also a factor in this move."

The world's leading central banks are lifting borrowing costs to rein in inflation, leading to concern the rate of economic growth will slow, particularly in China and India. Demand from those two countries has fueled a run-up in commodity prices. Rising rates and a sliding dollar also caused a slump in stocks in Europe and the United States.

The Reuters/Jefferies CRB Futures Price Index of 19 commodities, including energy, metals and agricultural products, fell as much as 2.7 percent to 351.85, the biggest drop since July 1988. Every commodity in the index declined, led by silver, heating oil and gasoline. Before yesterday, the CRB was up 22 percent in the past year, reaching a record 365.45 on May 11.

The Federal Reserve last week raised its key interest rate to 5 percent and suggested it may not be done with almost two years of increases. European Central Bank policymakers have signaled they will raise the benchmark interest rate as soon as next month to limit the effects of higher energy costs. Japan's consumer prices will rise for the next two years and the economy will keep expanding, the central bank said on April 28.

Oil fell after Saudi Oil Minister Ali al-Naimi said in Jordan yesterday that the Organization of Petroleum Exporting Countries, which pumps 40 percent of the world's crude, is adding enough new capacity, even if some members are struggling to meet current output targets.

"Supply is ahead of demand," he said.

Crude for June delivery dropped $2.63,or 3.7 percent, to settle at $69.41 a barrel on the NYMEX.

There's selling "across the board, not just in gold, but also silver, platinum and copper," said Frederic Panizzutti, a senior vice president at MKS Finance SA.

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