Commodity prices collapse to lowest in 12 years

The world's leading index of commodity prices has slumped to its lowest level in more than 12 years as China slows and America hints at tightening monetary policy.

The Bloomberg Commodity index, which tracks the prices of 22 different commodity prices such as gold, natural gas and oil, fell 0.3pc to 99.84 in early trading, the lowest point since August 2002.

The recent bout of weakness in commodity prices came as the US Federal Reserve issued an upbeat view on the state of US economy.

^{Bloomberg Commodity index reaches lowest level since August 2002}

Minutes from the Federal Open Market Committee's December meeting said the US economy is expanding at a solid rate with strong job gains, a signal that the central bank remains on track with plans to raise interest rates. Commodities, like all asset classes, have benefited from America's loose monetary policy.

The upbeat view from the US economy came after another sign of a slowdown in China, with official figures showing profits from the industrial sector fell 8pc in December from a year earlier.

Last year, China’s annual economic growth slowed to 7.4pc—its slowest pace in nearly a quarter of a century—as the property crisis in the country holds back the economy, and there is rising debt and slower demand for its products at home and abroad.

Most economists expect Beijing to set an annual-growth target for 2015 of 7pc.

The slowdown in the Chinese economy, the world's largest consumer of commodities, has caused a sharp fall in oil prices.

^{The Brent Crude price has fallen 57pc in under a year}

Brent crude – a global benchmark of oil from 15 fields in the North Sea – has fallen from $115 per barrel in June last year to just $48.9 per barrel in current trading.

The strength of the US dollar has also hit commodity prices hard. Because most commodities are freely traded in international markets, commodity prices are quoted in US dollars. When the dollar rises they become more expensive and this hits demand.

^{Dollar index reaches heighest point since 2003}

The US dollar index, which tracks the price of the US dollar against the worlds currencies, has increased by more than 18pc within the past six months as the economy strengthens and on market expectations of an increase in interest rates this year.