Metals malaise weighs on equity markets

The prices of a range of commodities slid further Monday, dragging down stocks as investors feared more pain ahead for the asset class.

Spot silver was the standout laggard, slouching to a low of $17.34 an ounce on Monday, reaching a four-year low. Data on Friday from the Commodity Futures Trading Commission confirmed that money managers had turned negative on the commodity. Spot gold also dipped, to $1,208.70 per ounce, and effectively wiped out all of its gains this year as the precious metal traded at levels not seen since early January.

Other metals were also lower with platinum extending losses and hitting new nine-month lows and palladium also slipping to levels not seen since mid-May. A London benchmark for copper hit a 3-month trough and Reuters reported that Chinese steel and iron ore futures slid to record lows on Monday. Soft commodities like wheat, corn and soybean are all lower for the trading year and prices eased again on Monday morning. Oil benchmarks and natural gas also saw weakness as the trading week began.

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"The liquidation is universal," Dennis Gartman, a commodities trader and editor and publisher of the Gartman letter, told CNBC via email. "Today may be quite ugly around the world as deflation, rather than inflation, is the order of the day."

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The malaise in the metal markets was felt across the broader equities indexes. Shanghai shares widened losses on Monday to close down 1.7 percent. In Sydney, shares saw hefty losses in mining majors which helped drag Australia's benchmark lower on the first day of the trading week. Fortescue Metals and Rio Tinto lead declines with losses of 4.8 and 2.5 percent each as iron ore prices slumped.

In Europe, the basic resources sector lost around 2.5 percent in early deals and stocks like Anglo American, Rio Tinto and Glencore suffered heavy losses. The latter's fall was accentuated by an announcement that it was in a contract dispute with another mining firm.

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A slew of reasons were given for the weak sentiment. In the fields, economic reports have reinforced an expectation that there are massive harvests ahead. There's also the stellar rally for the U.S. dollar. The greenback has climbed to trade at two-year highs, with anticipation of an interest rate hike in the U.S., and commodities have had to duly readjust with this currency strength.

Silver and gold to fall further?
Silver and gold to fall further?

And then there's also China. The Asian powerhouse, renowned for its large consumption of commodities, has seen some weak data points recently. The People's Bank of China has had to add more stimulus to the world's second largest economy and investors are cautious ahead of Tuesday's preliminary reading on the country's manufacturing sector, which could provide more evidence of a slowdown.

"Chinese data which we have been receiving is also driving the traders to sell the commodities," Naeem Aslam, a market strategist at brokerage firm Avatrade told CNBC via email. "In terms of gold, the results of Scottish referendum have evaporated the uncertainty and this has dampen the mood for safe heaven."

However, over the longer term there could be some rebound, according to Aslam. He told CNBC that industrial metals could do especially well given what he expects to be a "fresh QE (quantitative easing) injection by the Chinese central bank and the ongoing commitment by the ECB (European Central Bank)."

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For silver in particular, Richard Perry, a market analyst at Hantec Markets, believes that it could see some further pain in the near term. Perry has a price target of $16.70 per ounce for silver and said this could be reached within the next month.

For both silver and gold he sees "consistent selling pressure" with "incredibly weak" indicators as price floors are being continuously wiped out.

"(There are) a collection of really significant sell signals," he told CNBC Monday regarding gold. He believes the next big test for the metal could be $11.8450.