Oil below $85 takes toll on gold

A down day was on the cards for base metals, with benchmark copper prices more than 1 percent lower, while wheat prices also fell as export demand slowed and worries about steep Russian export duties subsided.

Risk aversion has blown through financial markets this week with investors curbing exposure to assets which had been purchased with low-yielding Japanese yen, which also hastened a retreat in key commodity markets.

While most investors believe the bullish long-term fundamental picture for commodities will remain due to robust emerging market growth, vulnerability to broader market gyrations should not be ruled out.

This was highlighted with news that Merrill Lynch & Co Inc reported $7.9 billion in write-downs for the third-quarter as the company was burned by lax risk management and bad bets on mortgages and leveraged loans for corporate takeovers.

“The longer-term picture is probably intact but there are the two overlays -- the ups and downs of the business cycle and the investment hypercycle that has been driving the markets recently,” said Sean Corrigan, chief investment officer at Diapason Commodities Management.

U.S. light crude for December delivery fell 32 cents to $84.95 a barrel, in anticipation of a rise in U.S. crude stocks and the possibility of increased supplies from OPEC.

Oil has fallen more than $5 since hitting a record high of $90.07 last week.

Capital Economics said in a research note that it had revised up its forecasts for oil but was “sceptical of forecasts that prices will rise as high as $100 per barrel anytime soon”.

Metals pressured

Spot gold dropped to $754.50/755.30 from $759.20/760.00 quoted late in New York on Tuesday, and retreating further from a 28-year peak hit last week at $770 per ounce.

Alongside the retreat in oil, bullion felt pressure from unfavourable currency fundamentals as the dollar gained slightly versus the euro, making the metal more expensive for holders of other currencies.

“Gold continues to chop around the $750-$760 area and remains vulnerable to an forex-related unwind. Overall though we see strong demand emerging on dips back towards the $740 area,” Michael Jansen, analyst at J.P. Morgan Securities, said in a daily research note.

Gold, often seen as a safe-haven asset, was expected to get support from the political tension in the Middle East, with Turkish warplanes and ground troops attacking Kurdish rebel positions just inside northern Iraq between Sunday and Tuesday.

Copper for delivery in three months, often seen as a key gauge of the metals market and the real economy in general, was quoted at $7,690/7,710 per tonne, down $105 or 1.3 percent from its closing price on Tuesday.

Analysts said the market was keeping an eye on upcoming Chinese economic data as an indicator of further demand from the world’s biggest consumer of copper and other industrial metals.

In agricultural commodities, U.S. and European wheat futures fell sharply on slow export demand and sources said that Russia had shelved plans for a steep export tariff on wheat exports.

CBOT March wheat in electronic trade fell 17-1/2 cents to $8.44 per bushel, while December wheat was down 16 cents.

Paris-based Euronext milling wheat futures were down between up to 5.75 euros a tonne with November off 5.50 euros or 2.3 percent at 236.50 euros a tonne.