LONDON/FRANKFURT (dpa-AFX) - The sharp price correction in precious and industrial metals weighed heavily on the commodity sector at the start of the week. The European Stoxx 600 commodity sector lost 2.6 percent to 731 points, extending its losses from Friday.
The sector index had broken above the 600-point mark in early December, surged by a third at its peak, and on Thursday reached just under 800 points, its highest level in 16 years. On Monday, it was the worst performer among the 19 indices on the sector board.
The trigger for the losses was the nomination of Kevin Warsh as the new head of the US Federal Reserve by US President Donald Trump. This sparked a veritable flight from riskier assets. Warsh is considered an "inflation hawk," tending toward a more restrictive interest rate path to get inflation under control.
This prompted investors to pull out of assets that had recently performed exceptionally well. According to Jim Reid of Deutsche Bank, the price of gold suffered its largest single-day loss since 2013 on Friday, falling by 9 percent. Previously, the precious metal had experienced its strongest eight-day rally since the major financial crisis of 2008/2009, setting new price records. The strategist also spoke of "remarkable volatility in precious metals," which was even more pronounced in silver than in gold.
Speculators who had bet on an even higher gold price using leverage are coming under pressure due to the price slump and must sell positions to avoid excessive exposure. In particular, hedge funds may be forced to liquidate parts of their holdings, such as stocks. As a result, the turmoil in the metals markets is also putting pressure, at least temporarily, on equity markets.
On the London Stock Exchange, losses on the metal exchanges dragged down the shares of numerous mining companies. In the FTSE 100 benchmark index, five heavyweights in the sector – Glencore, Anglo American, Antofagasta, Fresnillo, and Endeavour Mining – occupied the bottom spots with losses ranging from 3.5 to 6.5 percent.
Steelmakers' shares also suffered in the general sell-off. In Frankfurt, Thyssenkrupp and Salzgitter lost nearly 4 and 2 percent, respectively. In Paris, ArcelorMittal shares fell 1.8 percent at the start of the week.
However, the share price of Salzgitter, for example, had doubled within just a few months prior to the current correction./bek/ajx/mis
