A sell-off in gold, food and oil gathered pace yesterday as speculative funds pulled cash out of the futures markets in a continuing quest for security amid fears of a slowing American economy.

Gold led the rout, losing 4 per cent of its value, adding to its 6 per cent fall on Wednesday, leaving the metal priced at $920 an ounce, compared with its peak of $1,030 on Monday. Oil was also battered, initially falling below $100 a barrel before recovering.

The dash for cash extended to base metals as anxiety increased about the economic downturn. Copper and lead tumbled on the London Metal Exchange and the price of wheat and soya beans suffered a sell-off.

The flight from food, metals and oil was propelled yesterday by a strengthening of the dollar. Meanwhile, some brokerage firms asked for additional margin from clients to cover the mounting risk from volatile trading. The call for margin cash caused some investors to liquidate aggressive positions, worsening the sell-off. Hedge funds began dipping their toes into commodities a year ago and since the end of last year have been aggressive buyers in a frenzied speculation over the falling value of the US currency.

Most traded commodities are priced in dollars and so can be a useful hedge against a falling greenback. Gold has been the traditional inflation hedge but the surge in oil’s price, which peaked on Monday above $111 a barrel, is widely attributed to hedge fund speculation on a dollar collapse. A smaller than expected interest rate cut by the US Federal Reserve on Tuesday halted the dollar’s fall and appears to have caused fright among hedge funds with very long positions in oil and gold.

Fear of recession in the US is fuelling debate over the sustainability of further rises in commodity prices. MF Global warned clients yesterday that too little attention was being paid to flagging US demand for manufactured goods.

However, Schroders, a leading commodities investor, said that the underlying pressures driving commodities upwards continued. “We are at the beginning of a 15-to20 year bull market,” the fund manager said.

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