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Investor caution keeping commodities prices down

Investors are wary of getting their fingers burned as global economic fears have helped to send prices of raw materials -- particularly metals -- reeling since the middle of last month.

Prior to the downturn last month, most commodity markets had enjoyed six months of soaring prices which had culminated in record and multi-year peaks lighting up much of the sector.

The prices of copper, aluminium, platinum, zinc and nickel zoomed to historic heights earlier this year, while gold and silver climbed to 26-year pinnacles.

But over the past five weeks, copper, aluminium, nickel and zinc have plunged about 27 percent in value. Gold prices have plummeted 26 percent, and silver has fallen a hefty 38 percent, while palladium and platinum have shed 35 percent and 18 percent, respectively.

New York crude oil struck a historic high of US$75.35 per barrel at the end of April -- but has since dropped more than 8 percent to around US$69 per barrel.

London's Brent crude contract has, meanwhile, fallen heavily by 10 percent since its record US$74.97 hit at the start of last month.

Speculators are selling off assets because they are fearful of the impact of higher interest rates intended to combat rising inflation, analysts said.

Some analysts contend that increases in the cost of borrowing could choke off global economic growth and threaten a drop-off in demand.

"The financial markets continue to worry about energy-driven inflation and the central bankers continue to increase interest rates," said Calyon analyst Mike Wittner.

"This is feeding fears of slowing economic growth and causing declining liquidity, which is exerting downward pressure on various asset classes," he said.

Barclays Capital analyst Kevin Norrish, however, remained positive in his outlook for commodities.

Norrish said that the bigger macroeconomic picture was that further interest rate hikes were more likely owing to major economies strengthening faster than expected.
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