Gold, Silver Slump, Leading Commodities Drop on Dollar, Growth

             By Feiwen Rong and Dave McCombs

     Aug. 15 (Bloomberg) - Gold plunged below $800 an ounce, silver dropped as much as 12 percent and oil, corn and copper slumped as the dollar's rebound reduced the appeal of commodities after a six-year boom.

Palm oil tumbled as much as 9 percent, and rubber and wheat fell as the dollar headed for its longest winning streak in more than two years and on concern a spreading global economic slowdown will reduce demand for raw materials.

     Commodities, measured by the Standard & Poor's GSCI index, have tumbled 21 percent from their record July 3, descending into a bear market. Oil traded near its lowest for more than three months, gold for eight months and silver for almost a year. Copper and corn reached six-month lows this week.

     ``Prices have made a peak,'' said investor Marc Faber, 62, who publishes the Gloom, Boom & Doom Report. ``Whether that is a final peak or an intermediate peak followed by higher prices, we don't know yet. It could go lower.''

     Gold fell to $788.65 an ounce, its lowest since Dec. 17, and traded at $791.85 at 3:15 p.m. Singapore time today, down 1.8 percent. Silver's 12 percent drop was the most since June 2006 and the metal traded at $12.65 an ounce, down 10.8 percent.

     ``Once the psychological support at $800 got broken, we saw some stop-loss selling come through until we found new support about $790 when some physical buying came in,'' Charles Dowsett, head of structuring and trading of precious metals at ABN Amro Holding NV, said by phone from Sydney today.

     Hedge Funds

     Gold has dropped 23 percent from its record $1,032.70 an ounce on March 17 and silver has slumped 40 percent from its $21.3550 peak the same day.

     ``I expect commodity prices to remain subdued until mid- 2009,'' said Arjuna Mahendran, head of investment strategy at HSBC Private Bank in Singapore. ``The major issue in commodities is the proliferation of ETFs and hedge funds. As they unwind positions, this leads to the price overshooting.''

     The dollar has climbed 5.3 percent against the euro this month and reached a 5 1/2-month high today, heading for its fifth weekly gain. U.S. consumer prices rose at the fastest pace in 17 years in July, reducing the ability of the Fed to lower interest rates should the economic slowdown deepen.

     ``It's really a reshuffle of assets away from commodities,'' Jon Nadler, a senior analyst at Kitco Minerals & Metals Inc. in Montreal, said in a telephone interview today. ``Investors see that the Fed is resolved to fight inflation by hiking rates,'' which may help push up the dollar, he said.

     Dollar-Driven

     The dollar has ``bottomed'' against the euro, Goldman Sachs Group Inc. said in a research note, citing weakening global growth, declining oil prices and an improved U.S. trade balance.

     Gold's rally has been ``dollar-driven probably because we are supposedly seeing more writedowns in the European banks,'' said ABN Amro's Dowsett in Sydney. ``We could see gold go all the way down to $750 an ounce.''

     Crude oil for September delivery dropped as much as $1.65, or 1.4 percent, to $113.36 a barrel on the New York Mercantile Exchange, and traded at $113.58 at 3:21 p.m. Singapore time. Copper fell 1.7 percent to $7,257 a ton, corn declined 2.7 percent to $5.6150 a bushel, and palm oil tumbled as much as 9 percent to 2,392 ringgit ($714) a ton.

     To contact the reporters for this story: Dave McCombs in Tokyo at dmccombs@bloomberg.netFeiwen Rong in Singapore at Frong2@bloomberg.net Last Updated: August 15, 2008 03:30 EDT

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