Commodities skidded on Thursday as investors scrambled to liquidate after a U.S. Federal Reserve warning, coupled with signs of slower growth in China and Europe, stoked worries about slowing demand for fuels and metals.
Benchmark industrial metal copper tumbled to a one-year low, oil shed more than $4 a barrel and even traditional safe-haven asset gold faltered as a rallying dollar crimped demand for commodities priced in the U.S. currency.
We can have bear market rallies, but I can't see in the background where the big good news is going to come from, said Sean Corrigan, chief investment strategist at Diapason Commodities Management in Switzerland. We're left with the prospect of no further white knights.
The Fed said it would sell $400 billion of short-term securities and buy the same amount of longer-term debt in an attempt to kickstart growth, but many had been hoping it would inject more liquidity, as in previous simulus moves.
The market had whipped itself into all sorts of hope more than expectation that there would be some dramtic programme of pumping everything up in the world of assets and financial market prices, Corrigan said.
Equally disappointing were further signs of a slowdown in China, the world's biggest consumer of most commodities.
China's factory sector shrunk for a third consecutive month in September as flagging overseas demand put the brakes on new orders, HSBC's China Flash Purchasing Managers' Index (PMI) showed on Thursday.
The continued deceleration in the manufacturing sector of the world's second-largest economy came after the Fed warned about a slowdown for the U.S. economy, the world's largest.
China is the commodity world's only remaining crutch, and a contraction reading is most unwelcome, said David Thurtell, a Citigroup Inc. analyst based in Singapore.
Business activity in Germany also grew at its weakest pace in more than two years in September and new orders fell for a third month.
Industrial metals were battered by waves of selling as many bulls threw in the towel.
In base metals it looks pretty horrible. Nearly every one of these metals has broken some important trendline. It's becoming increasingly evident that the last hurrah of the metals bulls may have been sounded, Corrigan said.
Three-month copper on the London Metal Exchange dropped 6 percent to a one-year low of $7,800 a tonne, nickel lost about 5 percent and tin shed as much as 9 percent.
As long as economic growth is slowing and there is no good news out there, I think things are going to remain pretty soft for base metals, said Dan Smith, analyst at Standard Chartered bank.
U.S. crude oil futures tumbled nearly 5 percent to a low of $81.86 a barrel after the dollar surged to a seven-month high against major currencies, making making dollar-priced commodities more expensive for holders of other currencies.
Brent crude oil shed more than 3 percent to a low of $106.39 a barrel.
It's a combination of no QE3, low economic growth, China's PMI falling and European PMI data either slightly or widely below expectations, said Thorbjorn Bak Jensen, an analyst at A/S Global Risk Management Ltd.
The strong dollar hit spot gold , which fell as much as 2 percent to around $1,745 per ounce as investors failed to pile in as an insurance policy against further economic chaos.
Looking at gold, you have periods when you have strength in the dollar and rising gold, when both are seen as safe-havens, but right now, you'd have thought that gold would be well supported given the European situation, the U.S. situation and a slowing China, said Societe Generale analyst David Wilson.
It's really the dollar rally that is not particularly helpful, he said.
Gold has fallen by 3.2 percent so far in September, plagued by rising volatility and the strength of the dollar, although so far this quarter, it has hit record highs above $1,900 an ounce and is up 18 percent in its largest quarterly rally in 25 years.
U.S. grain futures slid along with other markets with wheat falling about 3 percent and corn losing ground for a third straight session.
Cocoa, raw sugar and arabica coffee futures also tracked the broad-based sell-off in commodity markets.