The drop in oil, gold and other raw materials since May is signaling an end to the five-year bull market in commodities as global growth slows and demand falls.
``The mega-run for commodities has run its course,'' says Stephen Roach, the New York-based chief global economist at Morgan Stanley, the world's biggest securities firm. Roach in May said the surge in oil and metals was a bubble about to pop.
Since then, the Reuters/Jefferies CRB Futures Price Index has fallen 12 percent from a record, more than enough to qualify as the first so-called correction since the rally began in 2001. The Goldman Sachs Commodity Index, after gaining for four years, has lost investors 5.1 percent in 2006. Gold and sugar already are in a bear market, defined as a price drop of 20 percent.
Commodities are plunging because of reduced growth in some of the world's largest economies. The U.S. Federal Reserve's report on economic conditions in each of its 12 districts last week indicated consumer spending rose ``slowly.''
Expansion in China, where growth of 9 percent in the past four years caused raw-material orders to surge, may be curtailed as the central bank raises interest rates and curbs lending. Some strategists remain bullish. James Gutman, senior commodities economist in London at Goldman Sachs Group Inc., the world's second-largest securities firm by market value, says the commodities losses are nothing more than ``cyclical fluctuations.
``We're certainly not at the end of the long-term bull market,'' says Gutman. ``If there are any near-term corrections, I'd view them as a buying opportunity.''
Prices Tumble
Sugar on the New York Board of Trade is down 40 percent from its February peak. Gold dropped below $600 an ounce today, its lowest in 10 weeks. Soybeans are 15 percent below their July high, and crude has lost 15 percent from its record level.
Frederic Lasserre, director of commodities research at Societe Generale SA in Paris, said a 50 percent plunge in metals prices is ``likely.'' Investor Marc Faber, managing director of Hong Kong-based Marc Faber Ltd. and publisher of the Gloom, Boom & Doom Report, agreed that a slowdown in the world economy means lower prices are ahead.
``Some industrial commodities may have peaked out for good,'' said Faber, who told investors to bail out of U.S. stocks a week before the 1987 so-called Black Monday crash. ``Grains and precious metals may continue to rise as they aren't tied to the economic cycle,'' he said in an e-mail.
Declines Accelerate
The drop in commodities gained momentum Sept. 8 with oil, gasoline, gold and copper falling. The pace of the declines may slow over the next 12 months.
That's because the global economy will expand about 5 percent in 2006, and growth next year will be ``robust,'' Masood Ahmed, a spokesman for the International Monetary Fund in Washington, said on Sept. 7.
IMF Managing Director Rodrigo de Rato said Europe and Japan will help power the economy, while the U.S. slows because of a cooling housing market and higher interest rates.
``You can certainly see the paws, but not a whole bear'' in commodities markets, said Joachim Klement, asset-allocation strategist at Zurich-based UBS AG's wealth management unit. ``We are not in a bear market yet. The long-term uptrend in commodities is still intact.''
$40 Oil Forecast
Crude oil should be at $50 a barrel now, rather than at $66, because investments by fund managers have pushed prices too high, according to Ben Dell, an analyst at Sanford C. Bernstein & Co. in New York. Standard Chartered economist Steve Brice in Dubai last week wrote that $40 crude oil is possible.
Commodities prices may slide for another nine months, said Tony Dolphin, who helps manage $125 billion at Henderson Global Investors Ltd. in London.
``A bubble scenario in commodities is still there but I expect a more controlled decline in prices,'' he said. ``The global economy hasn't built in any grave imbalances, such as the run-up in inflation in the late 1980s or the overinvestment in technology during the late 1990s, so I think the downturn will be limited.''
Optimistic Investors
Michael Lewis, head of commodity research at Deutsche Bank AG in London, points to falling world stock markets as a sign that the commodity bull market has further to go.
``If equities were posting double-digit growth, then money would fly out of commodities,'' Lewis said. ``That hasn't been the case. Commodities can still compete for capital. There's still room for prices to run.''
Morgan Stanley Capital International Inc.'s World Index, a measure for global stocks, has fallen 4 percent from its 2006 peak reached on May 9. Investments in the Goldman Sachs Commodity Index and the Dow Jones AIG Commodity Index may rise 50 percent to $150 billion by 2007 as pension funds and other money managers diversify from stocks and bonds, Sanford C. Bernstein said in an Aug. 21 report.
Some hedge fund managers say they can't take any more losses.
Ospraie Management LLC, run by Dwight Anderson, liquidated the $250 million Ospraie Point Fund that fell 29 percent in the first five months of the year, in part because of wrong-way bets against commodity prices.
MotherRock LP, the hedge fund run by former New York Mercantile Exchange President Robert ``Bo'' Collins, told investors last month he planned to shut down because of a ``terrible performance'' as natural gas prices sank. Collins didn't return messages left at his office and on his mobile telephone for comment.
``The mega-run for commodities has run its course,'' says Stephen Roach, the New York-based chief global economist at Morgan Stanley, the world's biggest securities firm. Roach in May said the surge in oil and metals was a bubble about to pop.
Since then, the Reuters/Jefferies CRB Futures Price Index has fallen 12 percent from a record, more than enough to qualify as the first so-called correction since the rally began in 2001. The Goldman Sachs Commodity Index, after gaining for four years, has lost investors 5.1 percent in 2006. Gold and sugar already are in a bear market, defined as a price drop of 20 percent.
Commodities are plunging because of reduced growth in some of the world's largest economies. The U.S. Federal Reserve's report on economic conditions in each of its 12 districts last week indicated consumer spending rose ``slowly.''
Expansion in China, where growth of 9 percent in the past four years caused raw-material orders to surge, may be curtailed as the central bank raises interest rates and curbs lending. Some strategists remain bullish. James Gutman, senior commodities economist in London at Goldman Sachs Group Inc., the world's second-largest securities firm by market value, says the commodities losses are nothing more than ``cyclical fluctuations.
``We're certainly not at the end of the long-term bull market,'' says Gutman. ``If there are any near-term corrections, I'd view them as a buying opportunity.''
Prices Tumble
Sugar on the New York Board of Trade is down 40 percent from its February peak. Gold dropped below $600 an ounce today, its lowest in 10 weeks. Soybeans are 15 percent below their July high, and crude has lost 15 percent from its record level.
Frederic Lasserre, director of commodities research at Societe Generale SA in Paris, said a 50 percent plunge in metals prices is ``likely.'' Investor Marc Faber, managing director of Hong Kong-based Marc Faber Ltd. and publisher of the Gloom, Boom & Doom Report, agreed that a slowdown in the world economy means lower prices are ahead.
``Some industrial commodities may have peaked out for good,'' said Faber, who told investors to bail out of U.S. stocks a week before the 1987 so-called Black Monday crash. ``Grains and precious metals may continue to rise as they aren't tied to the economic cycle,'' he said in an e-mail.
Declines Accelerate
The drop in commodities gained momentum Sept. 8 with oil, gasoline, gold and copper falling. The pace of the declines may slow over the next 12 months.
That's because the global economy will expand about 5 percent in 2006, and growth next year will be ``robust,'' Masood Ahmed, a spokesman for the International Monetary Fund in Washington, said on Sept. 7.
IMF Managing Director Rodrigo de Rato said Europe and Japan will help power the economy, while the U.S. slows because of a cooling housing market and higher interest rates.
``You can certainly see the paws, but not a whole bear'' in commodities markets, said Joachim Klement, asset-allocation strategist at Zurich-based UBS AG's wealth management unit. ``We are not in a bear market yet. The long-term uptrend in commodities is still intact.''
$40 Oil Forecast
Crude oil should be at $50 a barrel now, rather than at $66, because investments by fund managers have pushed prices too high, according to Ben Dell, an analyst at Sanford C. Bernstein & Co. in New York. Standard Chartered economist Steve Brice in Dubai last week wrote that $40 crude oil is possible.
Commodities prices may slide for another nine months, said Tony Dolphin, who helps manage $125 billion at Henderson Global Investors Ltd. in London.
``A bubble scenario in commodities is still there but I expect a more controlled decline in prices,'' he said. ``The global economy hasn't built in any grave imbalances, such as the run-up in inflation in the late 1980s or the overinvestment in technology during the late 1990s, so I think the downturn will be limited.''
Optimistic Investors
Michael Lewis, head of commodity research at Deutsche Bank AG in London, points to falling world stock markets as a sign that the commodity bull market has further to go.
``If equities were posting double-digit growth, then money would fly out of commodities,'' Lewis said. ``That hasn't been the case. Commodities can still compete for capital. There's still room for prices to run.''
Morgan Stanley Capital International Inc.'s World Index, a measure for global stocks, has fallen 4 percent from its 2006 peak reached on May 9. Investments in the Goldman Sachs Commodity Index and the Dow Jones AIG Commodity Index may rise 50 percent to $150 billion by 2007 as pension funds and other money managers diversify from stocks and bonds, Sanford C. Bernstein said in an Aug. 21 report.
Some hedge fund managers say they can't take any more losses.
Ospraie Management LLC, run by Dwight Anderson, liquidated the $250 million Ospraie Point Fund that fell 29 percent in the first five months of the year, in part because of wrong-way bets against commodity prices.
MotherRock LP, the hedge fund run by former New York Mercantile Exchange President Robert ``Bo'' Collins, told investors last month he planned to shut down because of a ``terrible performance'' as natural gas prices sank. Collins didn't return messages left at his office and on his mobile telephone for comment.
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