Investors are running away from risk as fears grow that the global recovery is slowing to a crawl.
Gold, copper and oil prices plunged Wednesday, along with global stocks, as worries over Europe's crippled economy pushed investors to seek a haven in U.S. currency and Treasuries.
The fall in key industrial raw materials such as oil and copper signals a belief that economic expansion will be slower than expected, while the pullback in gold and stocks speaks to a desire to shed risky assets. After months of stomach-churning volatility, buyers are indicating a new hunger for stability.
"The market is looking for safety," Alfred Lee, an investment strategist at BMO Asset Management Inc. in Toronto, said in an interview. "The safest asset class is still the U.S. dollar and U.S. Treasuries. The market in general is just not happy about all the macro risks right now."
Gold slumped 3.5 per cent to $1,574.05 (U.S.), crashing through $1,600 for the first time since July. Silver plunged 6.1 per cent, copper sank 4.7 per cent and oil lost 5.2 per cent to $94.95 a barrel. Stock indexes across Asia, Europe and North America retreated.
"What the overall markets are saying is that they take a dim view of whether or not Europe will sort out its debt-crisis issues, and that speaks to overall economic growth, and so, potentially, demand for raw materials," said Jon Guyer, chief investment officer at Longview Funds Management LLC near Baltimore.
A decision by the Organization of Petroleum Exporting Countries to raise output limits helped to push crude-oil futures to a five-week low. OPEC officials meeting in Vienna agreed on an output target of 30 million barrels a day, increasing supply at the same time as markets are worried about declining demand.
The drop in gold and oil took on added speed as prices breached thresholds that are closely watched by commodity traders. Gold fell through its 200-day moving average price on Wednesday, which some investors take as a signal to automatically sell to avoid more losses.
"A lot of traders will put [stop-loss orders]at the 200-day moving average, so when gold prices go through that 200-day moving average, a lot of those stop-losses will be triggered," Mr. Lee said. "Oil saw a similar story. Instead of crossing below its 200-day moving average, it's testing its 50-day moving average right now."
U.S. government 30-year bond yields, which move opposite to prices, dropped to a record low at an auction. Buyers' eagerness to lend money to Washington for three decades at 2.925 per cent a year indicates their desire for perceived safety at nearly any price.
The U.S. dollar climbed against all its major counterparts, and the Dollar Index, which measures the currency against six peers, rose to its highest level since January. Most commodities are bought and sold in dollars, so they tend to decline when the relative value of U.S. currency strengthens.
The popularity of U.S. Treasuries is a tribute to the large, liquid market in those securities, which makes it easy for large investors to get in and out of the asset. But it also reflects a lack of investing alternatives, money managers say.
"If Europe is going into economic challenges with their belt-tightening, austerity and difficult consumer and business environment, then their demand will decline," Mr. Guyer said. "That will have a ripple effect, not just on the U.S. economy and the global economy, but also on commodity prices."
With files from Bloomberg