Global uncertainty about the sustainability of the runup in commodities is rippling through the markets and pounding down prices as investors worry the party might be over.
Commodity prices fell Wednesday across a range of sectors from gold and silver to copper and cotton, on concerns about the sputtering U.S. economic recovery and a slowdown in demand from emerging markets as central banks move to contain inflation.
But observers aren't quite ready to say this is the bursting of the commodity bubble.
"We were ready for a cooling-off period," said Donald Coxe, chairman of Chicago-based investment firm Coxe Advisors.
Silver , in particular, was due for a correction as it was getting ahead of itself, he said.
Scotia Capital economist Derek Holt says many commodities have lost momentum, but he remains bullish on the longer term.
"In the near term, my bias is to see what's happening as a bit of a commodities take-back on an overheated market, as well as a U.S. slowdown and policy tightening in emerging markets," he said.
Wheat, hogs, cotton and sugar are all significantly off their peaks while soybeans, copper, nickel and zinc have been flat-lining, Mr. Holt said in a report Wednesday co-written with Karen Cordes Woods.
Colin Cieszynski, market analyst with CMC Markets, views the price drops as a pullback and not a full-fledged rout.
"I wouldn't say it's the end of the bull market but it's a pretty sizable correction" he said. "Sooner or later they were due for a haircut."
Ross Strachan, commodities economist with Capital Economics in London, sees further price drops in the months ahead, but not for gold and silver.
"We might expect strong pricing [for gold and silver]over the remainder of the year given continued uncertainty globally," he said.
On the other hand, base metals such as copper and iron ore could see continued weakening on slumping demand from developing economies, he said.
Precious metals were "very ripe for the recent pullback given the speed with which they progressed upwards in almost unrelenting fashion," he said.
But they are poised to maintain upwards momentum in the longer run as major emerging markets like China and India slow down, he added.
Silver and gold
Silver fell for a third day Wednesday as increases in margin requirements put a damper on speculation.
Gold declined on a report that influential Soros Fund Management LLC is cutting back on precious metal holdings.
While this wave of volatility may continue in the near term, the longer term trend is for continued rise in prices, says Colin Cieszynski, market analyst with CMC Markets.
U.S. crude oil is off slightly on concerns about Chinese monetary policy tightening and a forecast of bigger-than-expected stockpiles in the United States.
Political unrest in the Middle East has added a risk premium of about $30 (U.S.) per barrel of crude, says Ross Strachan, commodities economist with Capital Economics.
The death of Osama bin Laden is not likely to be a decisive factor for oil markets, he believes. "However, we expect the risk premium to fade as and when the Libyan crisis eases, helping to drag prices back within OPEC's range within year-end."
Copper prices fell to a seven-week low on concerns that global demand for the metal is slipping.
Disappointing economic data out of the United States and Britain fuelled fears that demand for copper - a key commodity used in a wide range of products, including appliances, vehicles, electronics and buildings - is headed for a tumble.
The outlook is not good, with imports of copper to the world's biggest consumers down by more than 20 per cent, year-over-year in March, according to Ross Strachan of Capital Economics.
This is one of the rare bright spots in commodities. The key ingredient in steel making is holding its own as construction projects continue apace in some regions, such as India and China.
Tight supply is helping keep prices buoyant.