Copper surrendered its biggest gain in seven years and gold, silver and mining stocks tumbled as investors reassess the consequences of Donald Trump's stimulus plans.
Trump's election victory this week ignited a frenzy of buying in industrial metals.
But on Friday, traders switched course as an equities rally stalled and the dollar gained amid speculation over how his policies will affect the economy and monetary policy.
Copper trading volume was over four times average levels, while price swings in options were the highest since January, data compiled by Bloomberg show.
Futures prices swung by 24 cents, giving investors and traders the opportunity to profit from the volatility by selling high and buying low throughout the trading hours. Gold's 30-day historical volatility was the highest since August.
"People fortunate or farsighted enough to be long options have had a very good day, but the exceptional volatility has claimed many casualties as well," Tai Wong, director of commodity products trading at BMO Capital Markets in New York, said by telephone.
"The price action in copper over the past 30 minutes has been particularly vicious."
Copper futures for December delivery dropped 1.6 per cent to settle at $2.509 a metric ton on the Comex in New York, after rising as much as 7.2 per cent. For the week, the metal is up 11 per cent.
The 14-day relative strength index had reached 92, the highest recorded. A reading above 70 suggests an asset is overbought.
As the most-traded base metal and a barometer of economic growth, copper is also a proxy for investors' views that Trump's presidency will boost government spending on infrastructure. The rally, which started three weeks ago, has been fueled by speculative trading in China, which will cool later this year, Citigroup said in a note.
People fortunate or farsighted enough to be long options have had a very good day, but the exceptional volatility has claimed many casualties as well.
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Goldman Sachs Group Inc. analysts including Max Layton and Jeff Currie said in a research note that copper's rally could reverse abruptly in the first quarter on a pickup in supply and slowing demand and credit growth in China. The bank favors zinc and nickel in 2017, which are either in deficit or more directly exposed to US stimulus, it said.
An increase in trading fees and margins on Chinese commodities exchanges is prompting speculators to trade copper on the LME, Citigroup analysts including David Wilson wrote in an emailed note. The Shanghai Futures Exchange on Thursday raised margin requirements for aluminum and other metals, after trading terms for iron ore, coal and other commodities were tightened by Chinese bourses. Shanghai nickel and copper were down.
While the surge "appears premature" and prices may fall toward the end of the year, stronger-than-expected Chinese factory data, falling global inventories, and additional spending by China on its power network all point to higher prices in the medium term, according to Citigroup.
Investors are also considering what a Trump presidency means for Federal Reserve policy and the trajectory of rates. Odds for a December increase in borrowing costs have risen to 84 per cent from 76 per cent a week ago. That's bad for gold, with futures for December delivery falling 3.3 per cent to $1,224.30 an ounce on the Comex.