Commodities slump after crude, corn turn lower

Crude oil shed more than $4 a barrel during the trading day, dragging down everything from gold and silver to corn and heating oil in the latest in a string of recent commodities sell-offs.

Experts say a host of factors are behind the pullback. Record high energy prices reached earlier this summer are starting to crimp global economic growth, leading to a slowdown in big construction projects in China, the Middle East and other developing regions. At the same time, near-perfect growing weather in the U.S. Midwest has battered grain prices in recent weeks, wiping out record-highs hit during last month's massive flooding.

Meanwhile, tighter scrutiny of commodities trading by Washington lawmakers may be causing some large hedge funds to pull funds out of the futures market in anticipation of possible restrictions on commodities investing.

"It seems we're in a commodities liquidation mode," said Richard Feltes, senior vice president and director of commodity research for MF Global in Chicago. "People are lightening up on their positions, assessing demand as news unfold and waiting to see what prices levels of crude do we regain the growth."

Feltes asserted that recent drops in crude, precious metals and grains marked a "pause" in the commodities rally, not an end. If crude prices fall to a level that countries and companies can afford, economic growth could pick up again and send commodities prices higher, he said.

Crude's decline weighed on gold prices Tuesday, with the August contract falling $15.20 to settle at $946.50 an ounce on the New York Mercantile Exchange after earlier dipping to $942.10.

Also pressuring gold was comments by Federal Reserve Bank of Philadelphia President Charles Plosser that the central bank will need to boost interest rates "sooner rather than later" to fend off inflation. That helped boost the dollar significantly, diminishing the appeal of gold as an inflation hedge.

Other precious metals traded mixed. Silver for September delivery fell 42 cents to settle at $18.005 on the Nymex, while September copper inched up nearly a penny to settle at $3.6905 a pound.

Crude oil fell Tuesday on expectations that Tropical Storm Dolly wouldn't affect supplies in the Gulf of Mexico. Adding to the volatility was the pending expiration of the August oil futures contract at the end of the day.