Commodities slide with other markets

Commodities prices suffered broad declines Thursday as the concerns over worsening credit conditions that pummeled other financial markets also led futures investors to cash in their holdings.

Nervousness about the cost and ease of accessing credit swept through Wall Street on Thursday, sending the Dow Jones industrial average plunging nearly 390 points, and the anxiety spilled over into the commodities markets. Precious and industrial metals prices plummeted, while the markets for energy and agriculture products also weakened.

News that French bank BNP Paribas would freeze three funds that have struggled to find liquidity in the U.S. subprime mortgage market increased market uneasiness, as did the European Central Bank's decision to supply $130 billion in overnight funds to banks at a bargain rate of 4 percent _ a sign that corners of the market may be cash-strapped. The Federal Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.

The central banks' moves, rather than calming investors, convinced them that there indeed are problems in the credit markets. The futures markets are sensitive to credit conditions because they are highly leveraged, meaning that traders often rely on financing or borrowed cash to fund their holdings.

"The fact that credit is becoming more expensive _ that credit spreads are widening _ is making it difficult for anyone holding long positions in commodities," said Jim Steel, HSBC precious metals analyst.

Gold prices gave up $13.50 an ounce to close at $672.80 on the New York Mercantile Exchange as investors fled to the relative safety of Treasury bonds and the dollar. Although gold is often considered a safe-haven investment over the long run, short-term concerns about credit can provoke investors to liquidate their holdings in order to use the cash elsewhere.

"If you're holding gold as insurance against something like this, you could sell to raise capital," Steel said.

Nymex copper shed 7.8 cents to close at $3.361 a pound, while silver and platinum also finished lower. Overseas, industrial metals including nickel and lead dropped sharply on the London Metal Exchange.

Mack Frankfurter, managing director operations for Cervino Capital Management LLC, pointed to investors' flight out of equities and commodities to Treasurys on Thursday as further evidence of the market's credit worries.

The yield on the 10-year note fell to 4.78 percent from 4.89 late Wednesday, as bond prices rose.

"You're looking at funds liquidating their positions, so commodity prices are going down," he said. "It's really a question of how much leverage there is in the system."

Meanwhile, investors were also weighing the implications of credit troubles on the broader economy _ and what that means for oil demand. Oil prices have been mostly on the decline since peaking at an all-time record last week. That's led some analysts to speculate that prices have also reached their high point for the year now that summer _ a period of peak demand for gasoline _ is starting to wind down.

Light, sweet crude for September delivery fell 56 cents to $71.59 a barrel on the Nymex. Gasoline futures fluctuated throughout the session before closing 0.37 cent lower at $1.934 a gallon.

Declines extended into agriculture futures, where corn and soybean prices fell on the Chicago Board of Trade. December corn slid 9.25 cents to end at $3.4875, while soybeans ended 0.25 cent lower at $8.7775. Wheat moved higher in early trading, supported by a strained global supply situation, but prices later succumbed to the wider market weakness. September wheat finished down 5.5 cents at $6.735 a bushel.

While the turmoil in other markets did affect agriculture futures, the price movements were muted somewhat by the imminent release of the U.S. Department of Agriculture's estimates on the size of the corn and soybean crops. That report will be issued Friday morning.