Gold surged 3 percent, extending its bull run as a safe haven asset as the European Central Bank's bond-buying program failed to ease mounting fears of a second recession. After a run of mostly bad economic data, that worry was heightened late Friday by agency Standard & Poor's (S&P) US ratings cut.
Oil was hit hardest, with U.S crude sliding as much as 5 percent to an 8-1/2-month low while Brent in London crashed below its 200-day moving average. Industrial metals and agricultural commodities lost between 2 and 4 percent. With US stock indexes tumbling as much as 4 percent, gold and Treasuries benefited.
"You're going to see a very high correlation with risk assets because there's still a perception that commodities are cyclical and the only area that will perform differently is the gold space," said Pau Morilla-Giner, head of commodities and senior portfolio manager at London & Capital.
While many commodity traders wondered when the tide of selling might stop, gold's 15 percent rally since June showed few signs of flagging as investors bet that more stimulus would prove necessary to put the economy back on track.
Losses were only briefly tempered by an earlier move by the European Central Bank to intervene in Spanish and Italian bond markets coupled with a pledge by G20 members to take action to ensure market stability.
"Investors are looking upon the ECB bond-buying as the first step towards the same kind of quantitative easing program the Fed is doing." said James Rife, an assistant portfolio manager at Haber Trilix Advisors, which manages $2 billion in assets.
"So, gold acts as the only currency that you can't print more of, and you are seeing a huge institutional demand for it."
The Reuters-Jefferies CRB index tumbled 2 percent to its lowest level in nearly eight months. This drop adds to recent losses as the 19-commodity index has seen its biggest four-day drop in three months fuelled by concerns about a stalling global economic recovery.
World shares tumbled to their lowest level in nearly a year and the euro extended losses against the dollar while the ECB action gave some respite to battered bond markets.
Gold climbed to an all-time high above $1,715 an ounce, its 11th record in 19 sessions, as investors snapped up the precious metal.
Investors have bought more gold in the last month than in the prior six months, based on the increase in open interest on the COMEX market from speculators and money managers, as well as inflows into exchange-traded products.
Analysts scrambled to raise their targets on bullion. Dominic Schnider, executive director for wealth management research at UBS, said gold may even be headed to $2,000 per ounce, while JP Morgan strategists pointed to $2,500.
Commodities with supply issues such as copper and corn were still attractive in the longer term, London & Capital's Morilla-Giner said, and investment bank Goldman Sachs maintained its overweight recommendations on commodities relative to other assets.
RECESSION FEARS HIT OIL
Oil suffered steep losses as worries over global growth hit markets.
"Chances of a double-dip recession have increased over the last week," said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt. "I still don't think another recession is a probability, but economic growth forecasts are being lowered."
US crude oil futures slid as low as $82.52, down 5 percent, marking its sixth loss in seven sessions, but recovered slightly to $83.57 by 1607 GMT. Brent crude shed as much as 3.6 percent to $105.43 a barrel before also paring losses.
US oil is down around 7 percent this year compared with a rise of 15 percent last year while Brent has gained 13 percent against an increase of 22 percent last year.
Fears about a global slowdown also hit industrial metals. Copper on the London Metal Exchange, metal used in power and construction, fell to an 11-week low to $8,797 a tonne.
"With many markets pricing more fear than fundamentals at the moment, buyers may still be a bit cautious," analyst Duncan Hobbs of Macquarie said.
Tin slumped as much as 8 percent to $22,400 a tonne, its weakest since last September.
"It is more of a macro story today, it is continued flight to safety and that suggests outflow of capital from agricultural commodities,"" said Brett Cooper, a senior markets manager at FCStone Australia.
Losses were tempered ahead of a government report later this week that will shed light on US corn and soybean crops after heat stress last month.
Copyright Reuters, 2011