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Anxiety spreads to commodities

August 17, 2007|From Reuters

Prices of metals, oil and grains tumbled Thursday as commodities were caught up in a global rush out of risky investments in favor of the safety of cash.

The Reuters/Jefferies CRB Index, a basket of 19 commodity futures, slumped 3.4% to a six-month low.

Near-term copper futures in New York sank 24.4 cents to $3.13 a pound. Crude oil dropped $2.33 to $71 a barrel.

Even gold, normally a haven for investors looking to protect wealth, dropped $20.60 to $648.30 an ounce.

Many analysts pointed to hedge funds, which have become big players in the commodities markets amid the global boom in hard assets in recent years.

Some hedge funds were selling investments across the board to pay off debt used to juice their bets, analysts said.

Others may have been selling because they expected their clients to pull some or all of their money out of markets.

"Hedge funds are sort of gearing up to the expectation that they'll get a lot of redemption notices over the next few weeks, and that during the course of September they're going to have to be liquidating positions in order to free up cash to meet those redemption notices," said Jeffrey Christian, managing director for commodity research firm CPM Group.

He predicted very choppy markets for the next two or three months in commodities as well as stocks, bonds and currencies.

Another risk to hard assets: So-called commodity index funds might begin to pull back from the sector if they worry that the U.S. economy could fall into recession and drag the global economy with it.

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