Oil, gold and copper fell on Monday as a stronger U.S. dollar and worries about a tepid global economy fueled a sell-off across commodities, after rallying earlier this month on efforts by central banks to spur economic activity.
Oil dropped more than a dollar and copper and gold pulled further away from multi-month highs touched last week. Malaysian palm oil futures slid nearly 7 per cent to two-year lows and Chicago soybeans hit their weakest since mid-August, pressured by rising output and slower demand.
Moves by the United States, Europe and Japan to buy bonds to bolster their economies had lifted commodity prices in recent weeks, although investors struggled to push prices even higher against the backdrop of a slowdown in China and the euro zone and an uneven U.S. economic recovery.
"I think the market is taking a dose of reality here so investors are pulling back a little. It's a little overheated across the board," said Mark Pervan, global head of commodity research at ANZ.
Both Brent and U.S. crude futures fell by more than a dollar in early trade before paring losses. Brent was down 95 cents at $110.47 a barrel by 0649 GMT, after hitting a session low of $110.21.
U.S. crude dropped 84 cents to $92.05, off an intraday trough of $91.78.
Brent dropped 4.5 per cent last week, while U.S. crude lost 6.2 per cent in their biggest weekly losses since June amid demand worries and as top oil exporter Saudi Arabia vowed to boost output to bring prices down.
Optimism over the stimulus measures has run its course and investor focus is shifting back to the shaky state of the global economy, analysts say.
"Investors are not confident, that is why they're punishing commodities, including oil," said Jonathan Barratt, chief executive of Sydney-based commodity research firm Barratt's Bulletin.
A firmer dollar is adding to the pressure on commodities priced in the greenback by making them more expensive for holders of other currencies.
GOLD, COPPER DOWN
Spot gold dropped 0.7 per cent to $1,760.10 an ounce, after rising to as high as $1,787.20 on Friday, its loftiest level since Feb. 29.
Gold has gained about 10 per cent over the last five weeks, its biggest such rise since September 2011, as investors braced for higher inflation following moves by global central banks to boost liquidity.
But bullion has found it difficult to clear $1,800, a level last seen in November last year. Some analysts, however, remain confident about the draw of the precious metal, convinced gold can well advance towards $2,000.
"I'm not worried at all about gold," said Dominic Schnider, an analyst at UBS Wealth Management in Singapore. "Despite the short-term retracement, gold is still a buy, and is still attractive. The $1,950 level is still a guidance."
Copper eased 0.7 per cent to $8,225.75 a tonne, slipping further from a 4-1/2-month top of $8,422 touched last Wednesday as investors await signs demand from top consumer China would pick up.
Chicago soybeans fell nearly 2 per cent, to below $16 a bushel for the first time since mid-August, hurt by estimates of higher U.S. production and slowing Chinese demand.
Analytics firm Informa Economics raised estimates for U.S. soybean and corn production while farmers in South America also geared up for a large crop.
U.S. November soybeans were down 0.7 per cent at $16.10 a bushel, after touching a low of $15.90-1/4, the weakest since Aug. 14.
The losses in soybeans, along with rising inventories, drove down Malaysian palm oil futures by 6.7 per cent to a session low of 2,577 ringgit per tonne, the weakest since September 2010.
Palm oil prices could drop to 2,600 ringgit-2,700 ringgit ($852-$885) till the end of this year as weaker global economic growth crimps demand at a time when supply rises at a faster rate, said Dorab Mistry, head of edible oil trading with Indian conglomerate Godrej Industries.