The rout in commodities deepened with prices heading for the lowest close since 2002 as the prospect of higher U.S. interest rates sent gold tumbling.
Raw materials are losing favor with investors as the dollar gains amid signals from Federal Reserve Chairwoman Janet Yellen that the central bank may raise rates this year on the back of an improving U.S. economy. Higher borrowing costs curb the attractiveness of commodities such as gold, which doesn't pay interest or give returns like assets including bonds and equities.
The Bloomberg Commodity Index dropped as much as 1.3%, falling for a fifth day in the longest stretch of declines since March. Gold futures sank to the weakest in more than five years while industrial metals, grains, Brent crude and U.S. natural gas also slid as a measure of the dollar climbed to the highest since April 13.
“Any increase in U.S. interest rates should further strengthen the dollar, prompting more fund outflows from commodities, metals and emerging-market assets,” Vattana Vongseenin, the chief executive officer of Phillip Asset Management Co. in Bangkok, said by phone.
With raw materials fetching lower prices, shares of commodity producers are tumbling. The 15-member Bloomberg Intelligence Global Senior Gold Valuation Peers Index, which includes AngloGold Ashanti Ltd. and Newcrest Mining Ltd., dropped 5.8% to the lowest since it began in 2005.
The Bloomberg Commodity Index slid 1.2% to 96.3564 at 2:19 p.m. London time. A close at that level would be the lowest since June 2002.
The Bloomberg Dollar Spot Index, which tracks the currency versus 10 major peers, climbed 0.2%. It has gained for four weeks, the longest winning streak since March.
Gold futures in New York lost 2% to $1,109.70 an ounce after slumping as much as 4.6% in early Asian trading.
China, the world's largest consumer of bullion, reported gold reserves on Friday that were smaller than expected. Prices fell below the 2014 low, a level that makes the metal vulnerable to more losses, Georgette Boele, a strategist at ABN Amro Bank NV in Amsterdam, said by e-mail on Monday.
“The market is in one of its bear phases, where any news is bearish news,” said David Baker, Sydney-based managing partner at Baker Steel Capital Managers LLP. “People had expected China's holdings to be higher,” said Mr. Baker, who manages about $150 million and holds shares in gold miners.