By Ole Hansen*

The Bloomberg Commodity Index slumped by the most since March this week as selling hit all sectors, particularly the twin bellwethers of energy and industrial metals. Only three out of 30 commodities tracked in the table below managed a positive return.

The agriculture sub-index fared even worse, as it dropped to levels last seen during the Great Financial Crisis nine years ago.

The combination of a stronger dollar and end-of-year position squaring probably added some additional pressure to the sector, not least among those individual commodities which have seen elevated speculative positioning up until now.

Despite an end-of-week recovery, crude oil is still headed for its second weekly loss with focus switching from a fully priced-in Opec production cut extension to US stocks, production and rig count.

A pick-up in Chinese imports last month helped support the market ahead of the weekend. Natural gas saw a fresh wave of long capitulation selling as the US winter continued to delay its arrival.

In metals, gold, silver and platinum broke key levels of support as the dollar rose in response to the increased likelihood of a US tax deal being passed and ahead of next week's near-certain Federal Open Market Committee rate hike. The selling was particularly intense in silver and platinum.

Industrial metals suffered their worst weekly setback since March with aluminum and nickel enduring particularly steep reversals. On top of this, copper suffered its biggest one-day selloff in more than two years with the combination of a stronger dollar, end-of-year position squaring, and worries over the demand impact from China's switch to a new and less metal commodity-intensive economic path.

Relative Strength Index, or RSI, is a technical momentum indicator that attempts to determine when a market is in an overbought or oversold condition.

Gold traded lower after breaking its 200-day moving average and trendline support from the December low at $1267/oz. Speculators, having positioned themselves for a break above $1300/oz, got wrong-footed on a combination of a US tax deal moving closer and the stronger dollar. The weakness and long liquidation that followed was led by silver which already began its decline a couple of weeks back when it broke below $17/oz.

Silver tends to be a popular metal for traders due to its relatively high volatility. It has, however, been struggling all year to make an impression. While industrial metals rallied earlier in the year it held steady against gold and just recently when these metals started to correct silver quickly joined in by weakening against gold. The fading interest could be a sign that traders in search of volatility have moved to Bitcoin or other crypto currencies instead. It also highlights that gold's primary source of support all year, apart from dollar weakness during the first half, has come from real money investors seeking tail-end protection against market risks elsewhere.

The XAUXAG ratio moved closer to 80 this week, a level above which it has visited very infrequently in decades – only three times during the past 22 years. Relative value has in other words begun to emerge and that is likely to provide silver with some relative support.

For the past four years gold has been averaging $1240/oz, a level it returned to this week following the break below technical support. From a technical perspective, the next major level of support can be found at $1200/oz. However, during the recent weakness open interest on the Comex gold future has fallen to a four-month low. This indicates that while long positions have been reduced there has been no appetite for adding new short positions in the market. We see this as a sign of traders looking for a bottom to reinstate longs instead of adding fresh short positions in the belief the market will go much lower.

• The writer is Head of Commodity Strategy, Saxo Bank