Following yesterday's dramatic sell-off, the materials sector of the S&P/TSX composite index has lost more than 25% of its value since the start of July.

That is by far the biggest correction so far in the six-year bull market for commodities, and it is a sign that the hot money that has driven the boom is disappearing as investors conserve cash and cut their exposure to riskier stocks.

Even Potash Corp. of Saskatchewan, the favoured destination of speculators for much of the year, is down more than 30% since mid-June.

"Nobody wants to buy mining stocks right now because whatever they buy, it's going down the next day," said Kerry Smith, an analyst at Haywood Securities.

The miners are facing a number of problems during the slow summer period: lower prices for many commodities, soaring capital costs, growing political risk, and a liquidity crisis that has made it difficult for anyone to raise money, especially the junior companies. In addition, experts said investors are forced to sell off positions in successful commodity stocks to make up for losses elsewhere.

"That shrinking of liquidity has cut down the speculative aspect, particularly in Canada," said Pierre Lassonde, chairman of Franco-Nevada Corp. and a major investor in the resource sector. "In a lot of cases, people who have money are sitting on their hands because they wonder if it's going to get any worse."

Yesterday, the biggest downward pressure was in the gold sector, as bullion futures fell US$36.40, or 4.2%, to close at US$828.30 on the New York Mercantile Exchange.

Gold is weakening as the U.S. dollar shows some stability and jewellery demand from Asian economies continues to tumble because of the high prices. That in turn has sent some of the speculative money out of gold, which peaked at more than US$1,000 an ounce in March.

"I think gold sold off because when the speculators decided the dollar was going to go the other way and started to get out, there was no sort of backdrop from the jewellery market because that had already weakened," said Victor Flores, an analyst at HSBC Securities in New York.

With the mining stock prices falling off so sharply, experts said many of them look cheaper than they have in years. In fact, many analysts are predicting a new wave of consolidation since the large-cap companies are generating plenty of cash and the juniors can't raise any. For evidence, they point to Aurelian Resources Inc. and Gold Eagle Mines Ltd. which both agreed to be bought in the past few weeks.

However, there is no consensus on when the commodity stocks will bottom out and start to turn around. Experts said the market will turn around once the liquidity situation improves and stock prices have been driven down to a point that the speculative money comes back. But when that happens is an open question.