The drop in commodity prices coincided with inflation cooling to just under 6%, the lowest in more than three years. Analysts say this brightens the prospects of lower interest rates that industry has been clamouring for. Gold was close to its biggest two-day fall in three decades, Aluminium skidded 7% to the lowest in three-and-a-half years, silver plummeted 10% while palm oil and most metals were at their weakest in many months.
Funds exited gold and many other commodities on sentiment that was already bearish on account of weak economic outlook in the US. Bad news from commodities-guzzling China, where latest data showed the economy had slowed more than expected, made the sentiment weaker. Only sugar, coffee and cocoa survived the rout, but their prices were already low because of market fundamentals.
Market observers say gold prices will fall further as investors are expected to prefer equities over the yellow metal. India, the world's largest consumer of gold, is expected to import 930 tonnes in 2013, compared with 864 tonnes last year.