Commodity prices dive as traders bail out again

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Leading up to the Federal Reserve’s announcement on interest rates in about 20 minutes, commodity markets are doing their best to give the central bank some cover if it wants to ease credit.

Every one of the 19 commodities in the Reuters/Jefferies CRB index is down today. The index overall was off 2.2% to 340.56 at about 10:45 a.m. PDT, its lowest since early December.

Nickel prices have plunged 6%, corn was down 5.3%, wheat was off 4.8% and silver was down 4.5%.

Crude oil has fallen $4.88, or 5.1%, to $90.83 a barrel, the 11th decline in 13 sessions.

The selling appears tied in large part to investors’ and traders’ mad worldwide rush to raise cash, amid fears that things could get much worse in the financial system.

‘The run to cash is really hurting commodities as much as anything,’ Darrell Holaday, president of Advanced Market Concepts in Manhattan, Kan., told Bloomberg News. ‘Everybody wants cash and bonds. Anything else carries way too much risk and you can’t blame them. Their investments have turned completely sour.’

From the Fed’s perspective, investors’ deepening aversion to risk is an ugly thing for the financial system.

But if commodity prices keep falling, or just stabilize, the inflation worries that have gripped central bankers worldwide since the start of this year are going to fade.

And if they can stop freaking about inflation, the Fed and its peer banks will have much more leeway to pump money into the system and keep it functioning until this crisis of confidence passes.