Gold, Metals Hammered

Futures have their worst day in more than a decade as speculative money flees commodities.
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Updated from 12:55 p.m. EDT

Gold and other metals suffered their biggest meltdown since the early 1990s Tuesday, as concerns over the impact of rising interest rates on global growth continued to rock speculative markets.

"We are witnessing another great transfer of wealth in progress, and the process has just begun," writes Jack Chan, trader and founder of Traderscorporation.com. "We can debate over China, India and a whole lot of reasons why metals should go to the moon sooner or later, but the fact is, a lot of hot money was required to propel these markets to the current great heights."

Gold for August delivery plunged $44.50, or 7.28%, to close at $566.90 an ounce. It was the worst single-day percentage decline for gold since January 1991, according to brokerage Miller Tabak.

The selloff was even more pronounced for silver, with the July contract losing $1.44, or 13%, to $9.62 an ounce. Copper for July delivery dropped 21 cents, or 6.8%, to $3.01 a pound. Both routs were the worst percentage declines in more than a decade.

The pain that has befallen commodities since mid-May has now lopped off 21% from the price of gold, 28% from the price of silver and 25% from the price of copper.

Although overseas stock markets and Wall Street were also the site of heavy selling on Tuesday, panic had not really set in, according to Amaury Conti, a metals trader with investment adviser Austin Calvert-Flavin.

But, "there's definitely less love between commodities and the institutional guys," he says. "The specialty retail funds that were the late comers and helped drive metals to their highs

last month are now all trying to get out at the same price, at the same time, and through the same door."

Uncertainty over how many more times the

Federal Reserve's

will raise interest rates and the outlook for the economy continue to keep markets underwater, Calvert-Flavin notes.

Early pressure came as crude oil prices dropped and the dollar rose on Tuesday.

Gold, which acts as a hedge against inflation, had reached 26-year highs last month as tensions with Iran -- the world's fourth-largest producer of crude oil -- pushed the price of a barrel to $75.

But oil prices have stabilized since, and fell again on Tuesday, with a barrel recently losing $1.68 to $68.50. Oil fell as Alberto, the first storm of the hurricane season, was weaker than expected and didn't threaten oil production in the Gulf of Mexico.

Meanwhile, a strengthening dollar continued to take a bite out of commodities prices. A stronger greenback lowers the value of dollar-denominated commodities such as gold, as it takes less of the currency to buy the same amount of gold.

In recent action, the Dollar Index, which tracks the greenback against a basket of key currencies, was up 0.7%.

The greenback remained strong after key U.S. economic reports did little to change expectations that inflation pressures will have the Fed hike interest rates at the end of June.

U.S. retail sales rose 0.1% in May, slightly above expectations, while excluding autos, sales advanced 0.5%, matching economists' forecasts.

Meanwhile, producer prices advanced 0.2%, less than expected, last month. Excluding food and energy, however, core prices rose 0.3%, above expectations for a gain of 0.2%.

"There are some real worries there as non-food and energy costs continue to increase substantially," writes Joel Naroff, president of Naroff Economic Advisors.

Fed officials have made clear their concern over the potential for inflation to seep into the broad economy, which has fueled market bets of a hike at the end of the month.

But the May consumer price index, which will be released on Wednesday, will be much more important to determine whether pipeline inflation is indeed being passed through to the broader economy, Naroff says.

Concerns that the Fed and other central banks are lifting interest rates to curb growth and inflation pressures, notably from soaring commodities prices, have especially rocked commodities and emerging markets in recent weeks.

Global financial markets continued to tumble overnight, sustaining the bearish sentiment that has kept commodities under severe pressure over the past month. On a fundamental level, the fear is that the Fed might lift interest rates too much and slow down the U.S. and the global economy along with.

Overall, shares of metals miners were sharply lower in recent action. The Philadelphia Gold and Silver index was recently down 3%, while the Amex Gold Bugs index was down 4.3% and the CBOE Gold index was down 3.1%.

Among the biggest decliners,

Coeur D'Alene

(CDE) - Get Report

was losing 5.3%,

IamGold

(IAG) - Get Report

was down 5%, and

Eldorado Gold

(EGO) - Get Report

was losing 4.6%.

Even steelmaker

Nucor

(NUE) - Get Report

was recently down 2% after raising its second-quarter guidance, citing strong shipments and lower-than-expected raw materials costs.

The newly launched

Market Vectors-Gold Miners

(GDX) - Get Report

exchange-traded fund, which tracks the performance of the Amex Gold Miners Index, was down 3.4%.

ETFs tracking the metals themselves also were down. The

iShares Silver Trust

(SLV) - Get Report

was tumbling 12% and the

StreetTracks Gold Trust

(GLD) - Get Report

was down 6.5%.