Commodities Record Biggest Quarterly Drop Since 2008 on Economic Turmoil

By Elizabeth Campbell and Maria Kolesnikova - Oct 1, 2011 4:41 AM GMT+0700

Commodities posted the biggest quarterly drop since the end of 2008 as bearish data on economies in Europe and China added to concerns that the world will tilt into another recession.

This month, European inflation quickened to the fastest since October 2008 amid the region’s sovereign-debt crisis. German retail sales in August fell the most in more than four years. A gauge of Chinese manufacturing shrank for the straight third month, the longest contraction since 2009.

A “deadly combination” of economic indicators show the U.S. is heading for a recession, Lakshman Achuthan of the Economic Cycle Research Institute said today. Prices for energy, metals and crops tumbled in September as fiscal woes in Greece mounted, driving worldwide equities lower. In September, corn had the biggest monthly slump since at least 1959, and silver tumbled the most since 1980.

“The demand outlook doesn’t look too good with these global concerns in terms of the commodity markets,” Boyd Cruel, a senior analyst at Vision Financial Markets in Chicago, said in a telephone interview.

The Standard & Poor’s GSCI index of 24 raw materials fell 2.6 percent to close at 591 at 3:46 p.m. New York time. This quarter, the gauge dropped 11 percent. In September, the measure slumped 12 percent, the most since November 2008. Today, grains led the decline as U.S. supplies reported in the latest government data topped estimates by analysts.

‘Wildfire’

“You have wildfire among the leading indicators across the board” with “non-financial services plunging, manufacturing plunging, exports plunging,” Achuthan, the chief operations officer at the Economic Cycle Research Institute in New York, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt.

Silver and copper led the monthly commodity declines. Only livestock prices recorded gains among the GSCI components in September. Gold futures posted a record 12th straight quarterly gain, partly on demand for an alternative to equities and currencies.

“For the next couple months, we believe the European debt crisis will still be weighing on all the risky assets,” Danske Bank A/S analyst Christin Tuxen said in an interview with Francine Lacqua on Bloomberg Television’s “The Pulse.” “Gold will still be a safe haven in this respect.”

The GSCI has slumped 22 percent since reaching a 32-month high on April 11.

“We believe markets will be held hostage by growth concerns for the rest of this year,” HSBC Bank Plc analysts led by Fredrik Nerbrand said in a report. They recommended reducing positions in industrial metals, oil and agriculture, while buying more gold.

To contact the reporters on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net; Maria Kolesnikova in London at mkolesnikova@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.