Commodity markets extended losses on Tuesday, with oil recoiling from the previous session's 32-month high under pressure after Goldman Sachs advised investors to cut and run, also leading to steep losses in precious metals and grains.
Long-term commodity bull Goldman advised its clients to take profits as there is a strong chance that commodity prices may reverse.
The Reuters/Jefferies CRB index has gained nearly 10 percent since the start of 2011, and is up 66 percent in the past two years on a mix of easy money and surging demand from China. Concern however has grown that rising commodity prices are hurting demand prospects.
Goldman Sachs noted "nascent signs of oil demand destruction in the United States" that could drag prices down, as well as the possibility of a Libya ceasefire. The bank also said Nigeria's elections, which had added further risk to oil markets, had thus far not caused supply disruptions.
"Open interest has been building up since the start of the new quarter in April, reflecting fresh inflows of speculative money into the oil market," said an energy analyst at a leading Japanese trading house who declined to be named.
"The Goldman report put a damper on this flow, at least for now, given that there was a sense of an overshoot in the market," he said.
ICE Brent crude for May fell 59 cents to $123.39 a barrel by 0722 GMT after sliding to as low as $121.97. The contract dropped nearly 3 percent on Monday.
U.S. crude for May delivery fell 72 cents to $109.20 a barrel, after hitting a session of low $107.87.
Gold slipped nearly 1 percent, and silver was off a 31-year peak hit in the previous session, echoing the more bearish tone engendered in oil by Goldman's warnings.
But a weaker dollar could cushion the fall as two top U.S. Federal Reserve officials, Janet Yellen and William Dudley, said the central bank should stick to its super-easy monetary policy, with inflation not a threat and unemployment too high.
Spot gold fell $9 an ounce to $1,457.75 an ounce Bullion struck a lifetime high above $1,476 on Monday.
"Some people may take profits and reduce positions. Everybody knows that Goldman Sachs recommended reduce positions. That's why the market is a bit scared," said Dick Poon, manager of precious metals at Heraeus in Hong Kong.
"I think sentiment is still bullish. It's still consolidating right now."
Grains also took a bit of a pounding with U.S. wheat falling around 2 percent, while corn, one of the markets darlings this year, lost more than 1 percent after striking a record high on Monday.
Corn, which gained some 14 percent in the last 10 trading days, fell 9-3/4 cents to $7.66-1/2 a bushel.
"Energy prices and the dollar are having an impact on the agricultural commodities," said Abah Ofon, an analyst with Standard Chartered Bank in Singapore.
"Fundamental news in the market is more or less known, there isn't any fresh data coming on stream now and all we need to do is look at the U.S. plantings."
Commodity shares from Australia to Japan led a broad decline in Asian equities, after the losses in energy and metals prices.
Tokyo's Nikkei share average ended the day down 1.6 percent, as blue-chip stocks declined on increasing uncertainties about the earnings outlook after the March 11 earthquake.
The MSCI index of Asia Pacific shares outside Japan fell 1.8 percent, on course for the biggest daily decline since the quake in Japan triggered panic selling in the region on March 15.
Alcoa Inc., the largest U.S. aluminum producer, reported a first-quarter profit that beat estimates, but its revenue missed Wall Street's target and its shares dropped 3 percent in after-hours trading on Monday.
London Metal Exchange
aluminum shed $4 to $2,685 yuan a tonne, off $2,720 hit in the previous session, its highest level since August 2008. Copper dipped 0.7 percent to $9,782.
"The copper market is certainly feeling the impact from the Goldman Sachs report, especially at a time when high prices are mostly supported by investment interest but not real consumption," said a Shanghai-based trader.
Copper prices were also pressured by the Japan's nuclear crisis, which kept risk appetite in check. Japan raised the severity of its nuclear crisis at the quake-damaged Fukushima Daiichi nuclear plant to a level 7 from 5, putting it on par with the Chernobyl nuclear disaster in 1986.
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