Cazenove's Jeffrey: Commodities at risk of further correction

Slower global growth combined with the end of QE in the US has left commodities vulnerable to a further correction, Cazenove's Richard Jeffrey has warned.

The group's chief investment officer said prices have reached such expensive levels demand will soon wane.

"There comes a point where increases in commodity prices become demand destructive and at which supply and demand dynamics would require a return to lower price levels," he said.

"The spike in prices seen in Q1 2011 had clear negative impacts on global business sentiment (both manufacturing and services PMIs have fallen from their January/February levels), suggesting high prices are beginning to have a negative impact on real economies."

Consumer indicators and disappointing employment figures in the US - one of the largest consumer of certain commodities - also point to a market in decline.

Jeffrey said he does not think the pace of the falls will be the same as seen in recent weeks, where precious metals lost as much as 30%, but he said further falls are likely.

"The recent decline in both ISM measures means the outlook for the world's largest economy is beginning to weaken," he said.

"A view that perhaps global growth is peaking would also mean end demand for commodities would fall."

Commodities sold off sharply at the start of the month, with oil down 10% and silver falling nearly a third.

However, last week the majority of commodities rebounded, making up some of the lost ground.