Copper dropped as much 3.8% on the London Metal Exchange, while silver led precious metals lower with a decline of more than 7%. Benchmark crude contracts fell more than 2% before retracing some of those losses.

The heavy selloff comes as investors pulled in their horns in the wake of US data signaling a deterioration in the world’s biggest economy. In turn, that’s sparking worries that the Federal Reserve’s long-awaited pivot to more supportive monetary policy may come too late to prevent a major downturn in the US and beyond. 

“It’s just widespread panic,” said Phil Streible, chief market strategist at Blue Line Futures. “We think long term these things are great investments, but it also hinges upon us not having a recession, not having the hard landing, and the Fed acting appropriately.”

For commodities like copper that are linked to industrial cycles, a hard-landing scenario would put fresh pressure on bulls who made bold bets on a surge in global demand earlier this year. Prices have already retreated more than 20% from a peak seen in May as investors bailed out, and Monday’s fresh bout of selling took prices to the lowest in nearly four months. Mounting worries about economic growth across commodities markets have prompted hedge funds to turn predominantly bearish on a basket of key contracts for the first time since 2016. 

“Markets like oil and copper appear to be pricing in a recession, which equity and bond markets are doing as well,” said Matthew Schwab, head of investor solutions at Quantix Commodities, a Greenwich, Connecticut-based hedge fund.

Gold — which is up 16% this year and would typically benefit during bouts of economic weakness — was also hit hard as investors closed out trades to cover losses elsewhere. That’s a common consequence during large-scale selloffs, and analysts said that the precious metal’s status as a haven should soon reassert itself if the turmoil continues. 

A slump in the dollar could also boost gold and other commodities priced in the currency by expanding purchasing power for consumers in key markets like China.

“Commodities are getting hit by this risk-off event,” said Ryan Fitzmaurice, a senior commodities strategist at Marex. “But looking out on the horizon, a weaker US dollar and rate cuts could provide support for the asset class.”

The selloff across commodities tapered a bit after fresh data on Monday showed the US services sector expanded in July after contracting a month earlier by the most in four years.

“We’ve had record amounts of cash sitting on the sidelines,” said Blue Line’s Streible. “Bargain hungers” are taking advantage of the dip in prices.

If there is more negative US economic data and the Fed is forced to make significant interest rate cuts, that’s bullish for gold. Conversely, robust economic signals may delay the pace of any easing by central bankers, which would weigh on the yellow metal, according to Marcus Garvey, head of commodities strategy at Macquarie. 

Spot bullion dropped as much as 3.2% to $2,364.43 an ounce, and was trading at $2,394.85 as of 10:57 a.m. in New York. Copper traded 1.8% lower at $8,889.50 a ton on the London Metal Exchange after earlier falling as much as 3.8%. Other LME metals were lower except for nickel. Brent crude was down 0.9%.