Commodities plummet as Fed may wind up quantitative easing

LONDON: Commodities tumbled by the most in six weeks as everything from gold to crude oil and copper dropped on concern that the Federal Reserve may phase out stimulus and as China’s cash crunch worsened.

The Standard & Poor’s GSCI Index of 24 raw materials lost as much as 2% to 622.91, the biggest intraday loss since May 10, before reaching 625.31 as of 1:41 pm in London.

Gold for immediate delivery fell below $1,300 an ounce to the lowest in more than 2 1/2 years and silver plunged 7.8%. West Texas Intermediate crude fell 2.3% to $96 a barrel.

Chairman Ben S Bernanke said the Fed may start tapering bond purchases that have fuelled gains in markets globally and end the program next year should risks to the economy abate.

China’s benchmark money-market rate climbed to a record and a private report showed that manufacturing shrank at a faster pace, spurring concerns that demand is slowing in the world’s biggest consumer of energy and metals.

“It’s mainly due to Bernanke’s comments and secondly due to the impact of Chinese PMI data that is hammering prices down, especially precious metals,” Daniel Briesemann, a commodities analyst at Commerzbank, said by phone from Frankfurt on Thursday.

“It’s panic selling and it may not be over yet as when the US opens up, there may be another pull down.” The preliminary reading of 48.3 for a Chinese Purchasing Managers’ Index released on Thursday by HSBC Holdings and Markit Economics compares with the 49.1 median estimate in a Bloomberg News survey of 15 economists. May’s final reading of 49.2 was the first below 50 since October, indicating contraction.


Illegal Capital

China’s seven-day repurchase rate, a gauge of interbank funding availability, rose to the highest since at least 2006 on Thursday as slowing economic growth, a crackdown on illegal capital inflows and efforts to rein in shadow banking contributed to increased borrowing costs. China’s central bank has refrained from using reverse-repurchase agreements to inject funds into the interbank market since February 7.

Bernanke said on Wednesday that the US central bank, which currently buys $85 billion of Treasury and mortgage debt each month, may begin reducing purchases this year in measured steps through the first half of next year and end buying around the middle of 2014 should the economic data justify it.

Gold dropped as much as 4.8% to $1,286.20 an ounce, the lowest since September 20, 2010, and was at $1,302.60 as of 1:41 pm in London.

Holdings in the SPDR Gold Trust, the world’s largest exchange-traded product backed by bullion, fell below 1,000 tonne for the first time in four years, wiping $30 billion from the value of the fund in 2013.

Copper declined as much as 2.3% to $6,802.75 a tonne and wheat lost 1.7% to $7.02 a bushel. Mirroring the decline in WTI oil, its North Sea counterpart, Brent crude, dropped as much as 2.2% to $103.83 a barrel.

“It’s not surprising that oil is lower when you look at the rubbish Chinese PMI data from last night,” Michael Hewson, an analyst for CMC Markets, said. “Added to that you have Bernanke’s stimulus withdrawal that may affect growth in the US, and these two factors are enough to pull down prices.”