Gold hits record, oil slides as economic worries mount

SINGAPORE: Gold jumped to a record high and oil fell on Friday on mounting worries the US economy may slip into recession, while a raging debt crisis in Europe pressured short-term funding markets, dealing another blow to investor confidence.

Data on Thursday showing factory activity in the US Mid-Atlantic region fell to the lowest level since March 2009 when the world's top economy was in recession fanned fears the US economy could shrink again, pummelling global equities and boosting the appeal of safe-haven assets like gold.

Adding to the global uncertainty, some European banks have started paying higher rates for US dollar loans, raising fears the euro zone debt crisis could infect the global financial system.

"If those concerns continue, there'll be money leaving the markets," said Greg Smith, managing director of Global Commodities.

US crude fell to as low as $80.66 a barrel and was trading down $1.03 at $81.35 a barrel by 0350 GMT. The contract slipped nearly 6 percent on Thursday and has lost 15 percent so far this month, the steepest since December 2008.

Brent hit a session low of $106.05 a barrel, down nearly $1 from the previous session. Brent has lost more than 9 percent this month, the worst since a near 15 percent drop in May 2010.

"This short-term downturn is not done yet. It could take WTI to as low as $75. The fundamental picture is not that bad but if the overall economy remains weak it is very hard to make a case for a bull run in oil," said Tony Nunan, a risk manager with Mitsubishi Corp in Japan.

Fuelling the selloff was data showing the Philadelphia Federal Reserve Bank's business activity index plummeted to minus 30.7 in August, the lowest level since March 2009 when the world's No. 1 oil user was in recession, from 3.2 in July. A reading below zero indicates a contraction in the region's manufacturing.

That data was so disappointing that "there's not strong enough adjective you can use to describe how bad it was", said Ben Westmore, commodity economist at National Australia Bank.

"Investors are taking what looked to be a fairly low probability event of a global recession and just attributing a higher probability to that outcome" hence the fall in commodity prices, said Westmore.

The global gloom boosted investor appetite for gold which climbed more than 1 percent to an all-time peak of $1,844.55 an ounce.

Gold, which has touched a record high nine times so far this month, has risen more than 5 percent this week, its best showing since February 2009.

The agricultural market also felt the heat from the sell-off, although tight global supplies kept losses in check.

Chicago Board of Trade wheat eased 0.4 percent to $7.36-1/4 a bushel and soybeans slipped half a percent to $13.54-1/2. Corn was off 0.3 percent at $7.11-1/4.

"Grains have their own dynamics that'll kick into gear in the next week or so because there's not enough of it," said Smith of Global Commodities. "I think now is a good time to be buying grains."

London copper bucked the downturn, with three-month futures gaining 0.3 percent to $8,800 a tonne, having lost more than 2 percent on Thursday.

Copyright Reuters, 2011