Gold fell to below $800 an ounce for the first time since December 2007 while aluminium prices hit their lowest in some six months. Copper also fell.

The price of commodities has fallen on speculation that demand will slow amid a global slowdown.

Another factor has been the stronger dollar, which has reached a half-year high against the euro.

As economists see improved prospects for the US economy, the dollar becomes more attractive as an investment.

And as the dollar becomes more attractive, particularly in times of crisis, gold has lost its lustre, as have other precious metals.

And industrial metals have been hit even harder.

Three-month copper dropped to an intra-day low $7,185 per tonne.

The metal, which is largely used in the building sector, had fallen to its lowest in six months earlier in the week at $7,120.

“There is still cope for copper prices to fall another 10%, or so, part of that is function of China’s growth slowing,” said Daniel Brebner, of UBS.

Oil was also down, after oil producer group Opec forecast lower demand for the fuel.

Crude oil slipped $1.61 to below $114 a barrel while Brent oil slipped $1.69 $111.99 a barrel.

“Worries about an economic slowdown in the US and Europe, and even Japan, are weighing on the oil market,” said Victor Shum, an analyst with consultancy Purvin & Gertz.

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The US trade deficit shrank in June, as a weak dollar boosted exports to an all-time high, official figures showed.

The US Commerce Department said the trade deficit totalled $56.8bn, down from $59.2bn in May.

Exports of goods and services rose 4% to a record $164.4bn, offsetting a 1.8% rise in imports.

Exports have offered much needed support to the ailing US economy, which is smarting from turmoil in the finance sector and a housing market slump.

Although the dollar has gained ground against the euro and other currencies in recent weeks, its earlier decline helped make US goods cheaper on international markets.

“Our weak economy is damping the demand for imports” Gary Thayer, Wachovia Securities

US Trade Representative Susan Schwab said the strong export growth showed that US companies were internationally competitive.

“To encourage further growth in our exports, Congress needs to act to level the trade playing field for American workers, farmers, and entrepreneurs in three key markets – Colombia, Panama, and South Korea,” she added.

The rise in imports was driven by a 14.6% surge in petroleum imports and analysts said lower demand for imported consumer goods showed that demand was slowing.

“Our weak economy is damping the demand for imports. In particular, if you exclude oil, we saw imports decline in June,” said Gary Thayer, senior economist at Wachovia Securities.

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The dollar has hit a six-month high against the euro and its highest in almost two years against the pound.

The US currency has bounced back from record lows against euro on fears that European growth may slow sharply.

The UK is also struggling with high inflation and faltering growth, causing a slide in sterling.

The European currency hit a six-month low of $1.4812, while the pound hit a 21-month low of $1.9012 in trading on Tuesday morning.

Commodity boost

The US economy is still suffering from the credit crisis but analysts say the deteriorating outlook elsewhere in the world has buoyed the currency’s standing.

The falling price of commodities, that are priced in dollars, has also helped the US currency. Investors had bought oil and gold to protect against dollar weakness but they are now unwinding those positions.

The euro has been further undermined by military conflict in Georgia that could disrupt European markets.

However, analysts cautioned that the dollar’s rally might not be sustainable.

“The scope for a much faster recovery in the dollar is still limited by relatively poor economic fundamentals in the US,” said Julian Jessop, chief international economist at Capital Economics.

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The dollar has rallied against the pound and euro amid belief that the US economy may be in better health than other countries.

Sterling slumped to 17 month lows of $1.9225, down 1.1%, while the euro hit five month lows of $1.5195.

The European Central Bank’s decision to leave rates on hold was the main driver of the fall, traders said.

Adding to the woes were comments from the bank’s chief that economic conditions in eurozone were worsening.

“We consider that there is some materialisation of the risks that we have identified,” ECB chief Jean Claude Trichet said after Thursday’s decision to keep rates at 4.25%.

Recession fears

“Most of the fall in euro/dollar came from the extremely dovish comments from Trichet, in combination with gloomy data from the euro zone … but growth is definitely a problem everywhere,” said John Hydeskov, senior Foreign Exchange analyst at Danske Markets.

While the US is continuing to suffer from the credit crunch – with consumer confidence falling, unemployment rising and ongoing problems in the housing market – its economy is showing small signs of growth.

That is in stark contrast to several European countries which are either in recession or on the verge of it.

On Friday Italy became the latest nation in the 15-member bloc to announce its economy had contracted in the second quarter of the year – raising fears of a looming recesssion.

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