By Feiwen Rong and Chanyaporn Chanjaroen (Bloomberg)

Aug. 15 -- Gold plunged below $800 an ounce, heading for the biggest weekly slide in more than 25 years, and oil, wheat and sugar slumped as the dollar's rebound reduced the appeal of commodities after a six-year boom.

The Reuters/Jefferies CRB Index of 19 commodities tumbled as much as 2.7 percent to 379.07, the lowest since March 20, as silver, soybeans and corn lead the drop. A rally this month in the U.S. currency has curbed the appeal of dollar-priced raw materials as a hedge against inflation, and demand for commodities may be hurt as an economic slowdown spreads.

Commodities, measured by the CRB, are down 20 percent from a record July 3, descending into a bear market. Declining raw- materials prices may help ease global inflationary pressures after consumer prices in the U.S. accelerated 5.6 percent during the year to July, the biggest jump in 17 years.

"There will be a precipitous slowdown in global growth and that means a lot less demand for things like energy and base metals," said Michael Pento, a senior market strategist at Delta Global Advisors in Huntington Beach, California. "It would be insane to step in and buy oil or metals now. These markets will be vulnerable for the next four of five months."

Sixteen of 19 commodities in the CRB declined this month, after the index plunged 10 percent in July, the biggest such drop in 28 years. Only wheat, cattle and nickel are up in August.

Commodity Peak

"Prices have made a peak," said Marc Faber, who forecast in June that commodities would start to fall. "Whether that is a final peak or an intermediate peak followed by higher prices, we don't know yet. It could go lower," he said by telephone today from Chiang Mai, Thailand.

Gold futures fell as much as 4.5 percent to $777.70 an ounce, the lowest since Nov. 20 on the Comex division of the New York Mercantile Exchange. Gold fetched $788.60 at 12:56 p.m. A close at that price would leave the precious metal down 8.8 percent, the biggest weekly decline since February 1983.

Silver lost as much as 14 percent, dropping to the lowest price since Sept. 5.

"There's a perception that demand for commodities might be weakening," David Jollie, editor of Johnson Matthey Plc's publication on platinum-group metals, said today by telephone from Royston, England. "North America and Western Europe are struggling, but the emerging economies remain strong."

Gasoline Demand

Crude oil for September delivery dropped as much as $3.67, or 3.2 percent, to $111.34 a barrel on the Nymex, and traded at $111.86 at 12:59 p.m. Gasoline demand was down 2.1 percent in the first seven months of the year as record prices and slower economic growth cut consumer spending, the American Petroleum Institute said Aug. 13.

Europe's economy contracted in the second quarter for the first time since the introduction of the euro almost a decade ago, a report showed yesterday. According to a UBS AG report published Aug. 6, the world is "precariously close" to a recession in 2009.

"It's not just a U.S. problem, it's a global problem, and it's taking its toll on commodities," said Peter Luxton, an energy analyst at Informa Global Markets. "What's happening elsewhere is starting to take its toll."

U.S. Output

There are signs of a pickup in the U.S., the world's largest economy. Industrial production unexpectedly rose in July, helped by gains in automobiles, metals and machinery, the Federal Reserve reported today.

Demand for autos increased for a third month, reflecting a continued rebound from a strike at an auto-parts supplier. Gains elsewhere signal demand from overseas continued to boost orders even as U.S. consumer and business spending weaken.

Crude oil will probably fall below $100 within weeks, nearing the $90 threshold that would trigger a production cut by the Organization of Petroleum Exporting Countries, according to Alfa Bank. OPEC, the supplier of more than 40 percent of the world's oil, is scheduled to meet in Vienna on Sept. 9 to review production targets.

"OPEC will likely defend $90 a barrel or higher," Alfa analysts led by Ronald Smith in Moscow wrote in an e-mailed report today. "OPEC will remain firmly in control of the oil market for at least the next decade."

Investment Flows

Assets linked to commodity indexes have almost quadrupled to $297 billion as of June, from about $76.7 billion in January 2006, according to an estimate by Lehman Brothers Holdings Inc. Some investors buy commodities as a hedge against inflation and against declines in the dollar. The CRB index jumped to a record last month as the U.S. currency slumped to an all-time low against the euro.

A "buying orgy" in commodities was inflating prices and increasing the risk of a collapse, Paul Touradji, founder of Touradji Capital Management LLC, said in March.

Gold may rebound from the latest slump and rally through 2010 as fabrication demand rises and on expectations that the dollar will resume its slide against the euro, Citigroup Inc. said. It forecasts an average price of $950 next year and $1,000 in 2010.

"Longer term, we would not be surprised to see gold double," the bank's analysts John Hill and Graham Wark wrote in a report. "We would be aggressive buyers at current levels expecting gold to work higher through 2009/10."