Commodities Retreat Most Since May in Dead Month for Investors

Slumping energy and metal prices sent commodities to their biggest monthly loss since May, lagging behind stocks, bonds and the dollar, as the global economy grew at the slowest pace since the 2009 recession.

The Standard & Poor’s GSCI Total Return Index of 24 raw materials fell 4.1 percent, erasing gains for the year. The MSCI All-Country World Index of stocks slid 0.6 percent, including dividends, while the U.S. Dollar Index slid 0.02 percent. Bonds of all types gave positive returns, according to Bank of America Merrill Lynch’s Global Broad Market Index.

Investor optimism dimmed as the International Monetary Fund cut its global growth forecast and the Federal Reserve said strains on the world economy present “significant downside risks.” China reported the seventh straight quarter of slowing growth, while services and manufacturing in the 17-nation euro area last month contracted more than economists forecast.

“Europe is a complete and total disaster and doesn’t appear to be solved,” John Stephenson, who helps manage $2.7 billion at First Asset Investment Management Inc. in Toronto, said in a telephone interview. “China clearly seems to be slowing. You essentially have a situation where investors just have very little optimism.”

The S&P GSCI Total Return Index fell for a second month, leaving the gauge down 0.7 percent for 2012. Commodities are headed for a second consecutive annual loss for the first time since 1998. The total return gauge was up 0.2 percent today.

China Slows

China’s economy, the biggest user of everything from copper to cotton, has slowed for seven straight quarters, the government said Oct. 18. Greece’s coalition leaders continued to squabble over measures needed to clinch rescue funds, while in Spain, where unemployment climbed to a record, Prime Minister Mariano Rajoy weighed whether to apply for a full sovereign bailout.

“The markets realized that slow growth is still a concern around the world,” Michael Cuggino, who manages about $17 billion at San Francisco-based Pacific Heights Asset Management, said in a telephone interview.

Raw materials may get a boost from the U.S. The Commerce Department said on Oct. 26 the economy grew at a 2 percent annual rate in the third quarter, topping the median forecast by analysts for a 1.8 percent gain. Consumer confidence rose to a five-year high in October, and home sales in September were the most in two years, figures showed last week.

Quantitative Easing

The GSCI Total Return Index jumped 12 percent in the third quarter as the Fed announced a third round of so-called quantitative easing, which involves $40 billion in monthly purchases of mortgage-backed bonds. Commodities, as measured by the S&P GSCI Spot Index, surged 92 percent from December 2008 through June 2011 as policy makers bought $2.3 trillion of debt in two rounds of stimulus.

Speculators anticipate this year’s bid to spur growth won’t be enough. Bets on rising raw-materials prices shrank for the third straight week in October, the longest losing streak since April, data from the U.S. Commodity Futures Trading Commission in Washington show. Twenty of the 24 commodities tracked by the GSCI dropped in October. Gold slid 3.1 percent, the first decline in five months. Nickel on the London Mercantile Exchange slumped 12 percent, the first loss in three months, while zinc fell 11 percent, the most this year.

Boom Ending

Australia’s central bank resumed cutting its benchmark interest rate on Oct. 2, two weeks after Resources Minister Martin Ferguson said Sept. 17 that the global commodity boom is over. In the past two months, weaker prices and an elevated Australian currency prompted mining companies BHP Billiton Ltd. and Fortescue Metals Group Ltd. to put off projects and cut jobs.

“If you’re an investor in industrial materials or commodities, you realize the party is effectively over,” Peter Sorrentino, who helps manage about $14.6 billion of assets at Huntington Asset Advisors in Cincinnati, said in a telephone interview. “The growth in demand is not going to be there.”

Gasoline led commodities lower, plunging 17 percent to $2.7618 a gallon on the New York Mercantile Exchange, the sharpest slide since November 2008. The decline erased much of the 23 percent gain of the third quarter as U.S. refineries restarted units after repairs and demand sank to a seven-month low, according to Energy Department data.

Cheaper Gasoline

While pump prices are up 2.3 percent from a year ago, they fell every day in the past three weeks to $3.521 a gallon, the lowest since July 31, according to data from the AAA, the largest U.S. motoring organization. The decline blunts one weapon of Republican presidential candidate Mitt Romney, who has blamed President Barack Obama for almost doubling fuel prices since 2009. The election is Nov. 6.

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