A record plunge in commodities may signal the U.S. is headed for the longest recession since 1981, just after Ronald Reagan became president and the economy began a 16-month slump.
Industrial raw materials measured by the Journal of Commerce fell at an annual rate of as much as 56 percent last week, the most since 1949 and worse than the declines before every recession since then. Crude oil, copper and wheat tumbled more than 50 percent from records this year as the U.S. economy declined in the third quarter by the most since 2001.
``The industrial sector, which was helping to keep the recession relatively mild, has completely given way and now we need to be prepared for a much more severe recession,'' said Lakshman Achuthan, managing director at the Economic Cycle Research Institute in New York, which compiles the Journal of Commerce data. ``It's at least going to look something like what we saw in the early 1980s, but it could be worse.''
Goldman Sachs Group Inc., once among the biggest commodity proponents, said Oct. 23 the risk of a ``sharp global economic slowdown'' may send prices even lower. Codelco, the world's largest copper miner, said this year's price collapse signals the end of a ``supercycle'' for the metal....MORE
And: Gold Set for 2-Year Low as Deflation Trumps Inflation
Gold, the metal that rallied during every U.S. recession in the past three decades, may drop to a two-year low as the threat of deflation curbs bullion's appeal.
The number of gold futures held in New York plunged 48 percent since its Jan. 15 peak, according to data compiled by Bloomberg. Prices fell 17 percent last month to $724.55 an ounce in London. The metal may drop to $600 by yearend for the first time since 2006, said Joel Crane, a Deutsche Bank AG strategist in New York.
While gold rose since 2000 as the world economy expanded and the dollar weakened for five of the past six years, the Reuters/Jefferies CRB Index of 19 commodities lost 43 percent since reaching its peak in July as the seizure in credit markets caused economies around the world to slow and the U.S. to contract 0.3 percent in the third quarter. Rather than providing safety for investors, gold declined almost 31 percent since reaching a record $1,033.90 an ounce in New York on March 17.
``Gold is not considered a safe haven because investors are viewing it as part of the commodity class,'' Crane said in an interview. ``Commodity is a bad word right now. Through this whole credit crisis mess, cash has been king.''>>>MORE