Commodities face reversal of fortune as prices slide

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The commodity bull market has developed a serious limp.

Crude oil futures slid again today, losing $2.54 to $122.19 a barrel, the lowest closing price since May 6. Gasoline futures fell to $3 a gallon, down from $3.07 on Monday and the lowest since May 2.

But there’s more to the pullback in raw materials prices than what’s going on with energy. The Reuters/Jefferies CRB index of 19 major commodities eased 0.5% today, the 10th decline in 12 sessions. It has fallen 13.1% since reaching a record high July 2.

Almost anywhere you look in the commodities markets, prices are well off their recent highs. Corn, soybeans and wheat have slumped in recent weeks. So have nickel and copper. Gold tried to retake the $1,000-an-ounce mark earlier this month but has been pushed back to $928.

For consumers, this reversal of fortune in the prices of hard assets is good news, of course. Not so for investors who only recently jumped on the commodity bandwagon. The share price of the Pimco Commodity Real Return mutual fund, popular with many individual investors who wanted to bet on raw materials, is off about 16% from its peak reached July 3.

The Standard & Poor’s 500 stock index, by contrast, is up fractionally in that period.

Many futures traders say commodity prices are just taking a cue from signs of slowing economic growth worldwide, figuring that can’t be bullish for raw-materials demand.

With gasoline, in particular, ‘The evidence is there, certainly in the U.S., that people are cutting back,’ notes Ron Goodis, head of futures trading at Equidex Brokerage Group in Closter, N.J.

William O’Neill, veteran commodities trader at Logic Advisors in Upper Saddle River, N.J., says there also has been talk that some institutional investors have been pulling back from commodity funds this month, wary of Congress’ efforts to paint them as villains that have helped to stoke the surge in prices over the last few years.

Or maybe they’re just recognizing that too many investors had blithely hopped aboard this bull market in the first half of this year.

The comfort level with buying commodities had become ‘too easy,’ Goodis said. ‘It was the ‘in the know’ trade.’

Whenever anything in the markets begins to look like a sure bet, it’s usually an invitation to a smack-down.