Oil falls, gold hits record after US downgrade

Singapore: Gold surged to a record high on Monday and other commodities from oil to grains slid as investors cut riskier assets after the United States lost its top-notch AAA credit rating, creating renewed uncertainty that boosted bullion's safe-haven appeal.

Oil dropped more than $3 while wheat and corn retreated, and Shanghai futures fell sharply for a second day as the outlook for commodity demand deteriorated amid shaky Western economies and a debt crisis gone global.

The Group of Seven nations is committed to taking coordinated action to ensure liquidity and the European Central Bank signalled it would start buying Italian and Spanish debt in a bid to calm markets that have become increasingly doubtful about Europe's ability to deal with its debt issues.

But the dollar's losses helped oil and other commodities recover from session lows, with London copper reversing direction to edge higher as investors bought on dips.

"Because it's a new situation and the markets are nervous about it, they are going to take it in their stride," said Jonathan Barratt, managing director of Commodity Broking Services.

"They are going to try to work out what actually happens from here."

Strong economic growth in China, the world's top copper consumer, number 2 oil user and major buyer of grains, as well as tight global supplies for some raw materials, including coal and iron ore, will provide certain support and some investors may see weakness as a buying opportunity.

US crude, which is down 7.5 per cent so far in 2011, fell $2.64 to $84.24 a barrel, after hitting a low of $83.68 earlier, marking its sixth loss in seven sessions. [O/R]

Brent oil, which is up nearly 13 per cent so far in 2011, slipped $2.80 to $106.57, off a low of $106.20.

Spot gold hit an all-time top of $1,694.19 an ounce, its 11th record in 19 sessions. Gold, a haven in troubled times, has gained more than 19 per cent this year.

US gold futures also touched a record of $1,698, while both spot and US silver futures jumped more than 5 per cent.

London copper rose 0.4 per cent to $9,079.75 a tonne, after falling to as low as $8,950 earlier, its weakest since June 27.

In agricultural markets, US soybeans slid to a one-month low, while corn and wheat dropped.

Shanghai base metals cut losses after opening sharply lower, with third-month copper down 0.8 per cent at 68,050 yuan per tonne, off a low of 66,630 yuan, and zinc down 1.5 per cent at 16,915 yuan, after falling as low as 16,320 yuan.

Standard & Poor's cut the long-term US credit rating to AA-plus on Friday, a move that over time could ripple through markets by pushing up borrowing costs and making it more difficult to secure a lasting recovery.

The Reuters-Jefferies CRB index, the 19-commodity benchmark, fell nearly 4.5 per cent last week, its steepest drop since a rout in early May fuelled by concerns about a stalling global economic recovery.