Commodities took a drubbing on global markets on Thursday as investors drove down the price of everything from copper to coffee, fearing the lifeless global economy will relapse into another recession.
Oil dropped to a six-month low and copper and silver fell the most since May. Gold, considered a safe bet in troubled economic times, hit another high.
The thrashing of commodity prices happened as mayhem hit global indices, resulting in a wipeout of gains made so far this year.
"It's ugly," said David Bouckhout, senior commodity strategist at TD Securities Inc. "I think there's more to it than just the doldrums of summer. This is much more of a move that the market is signalling that there is some real concerns out there."
Investors are worried that the U.S. and European economies have not recovered to a level many expected since the 2008 global economic meltdown. And while China's economy is still growing at just under 10 per cent, it too is showing signs of slowing.
"China helped through the downturn but now even its economy is going through some growing pains," Mr. Bouckhout said.
Analysts are now reviewing their bullish shorter-term economic forecasts to determine whether they should be scaled back in light of the market retreat. A lot will depend on economic data coming out of the United States in the coming days and weeks, as well as indicators from China, the world's largest consumer of commodities.
Even a small decrease in China's growth will have widespread implications for commodities, particularly mining companies that are betting billions on the Asian power's strong appetite for metals used to help fuel its aggressive infrastructure push. A slowdown in China, coupled with continued debt woes in the U.S. and Europe, could mean a retreat in metal prices as demand slips. That, in turn, could lead to project delays and a pullback in production – reminiscent of the recent global financial crisis.
On Thursday, copper, considered a barometer of economic activity because it is used across many industries, fell 2 per cent in New York to $4.24 (U.S.) a pound, its biggest drop in 10 weeks. The metal has tumbled 4.8 per cent this year. It hit a record $4.62 in February.
Silver fell nearly 6 per cent to $39.43 an ounce in New York, its biggest drop since mid-May, while palladium and platinum fell 5 and 3 per cent, respectively.
In agriculture, wheat slid 3 per cent to close at $7.25 a bushel on the Chicago Board of Trade, while Arabica coffee futures fell 2.5 per cent to $2.39 per pound in New York.
Gold hit another all-time high of $1,684.90 an ounce on Thursday, its third record-setting day, but later closed at $1,659 in New York as investors sold off the precious metal to cover losses in other markets. The price of gold has climbed 17 per cent this year.
Crude for September delivery ended the day down about 6 per cent to $86.63 a barrel on the New York Mercantile Exchange, the lowest close since February when the civil war in Libya began to intensify. Thursday's close marked the biggest one-day drop since early May.
"It's one of those days when investors turn risk averse," said Patricia Mohr, vice-president economics and commodity market specialist at Scotia Capital.
Last weekend's 11th-hour debt talks in the U.S. did little to restore confidence that the country has its economic troubles under control.
"It could be that some forecasters are marking down their U.S. market growth projections and there may be a further markdown for Europe as well," Ms. Mohr said.
While investors may be seeking liquidity right now, many analysts still believe the long-term picture for commodities is strong given the demand from rapidly growing nations such as China, India and Brazil.
"We see the commodities sector remaining bullish down the road," TD's Mr. Bouckhout said.
With files from Bloomberg News