Wednesday, January 2, 2008

Commodities Surge, Led by Oil at $100, Record Gold (Update7)

By Pham-Duy Nguyen and Mark Shenk


Jan. 2 (Bloomberg) -- Crude oil reached a record $100 a barrel and gold soared to the highest ever, leading a commodity surge as the dollar's slump against major currencies enhanced the appeal of raw materials as hedges against inflation.

Spot gold climbed to $860.10 an ounce, and wheat and soybeans jumped more than 3 percent. The UBS Bloomberg Constant Maturity Commodity Index gained 2.2 percent today to a record after climbing 22 percent in 2007. The dollar fell on speculation the Federal Reserve will cut borrowing costs in an attempt to bolster the U.S. economy.

``The most salient buzzword in 2008 is going to be inflation,'' said Michael Pento, senior market strategist for Delta Global Advisors Inc. in Huntington Beach, California, which manages about $1.4 billion. ``The Fed is lowering interest rates and vastly increasing the money supply. They're further fueling inflationary expectations.''

Crude-oil futures for February delivery rose $3.64, or 3.8 percent, to close at $99.62 a barrel on the New York Mercantile Exchange. The previous intraday record was $99.29 on Nov. 21.

Gold for immediate delivery surged $23.25, or 2.8 percent, to $856.95 an ounce at 4:35 p.m. New York time. Gold futures for February delivery rose $22, or 2.6 percent, to $860 an ounce on the Comex division of the Nymex, a record settlement. The metal earlier reached $864.90, the highest for a most-active contract since Jan. 21, 1980, the day futures reached a record $873.

Nigerian Oil Output

Crude oil rose on concern that violence may further cut output in Nigeria, Africa's biggest producer, and on speculation U.S. petroleum inventories fell for a seventh week.

``What brought us here is still with us,'' said Harry Tchilinguirian, an analyst at BNP Paribas SA in London. ``The dynamic of strong winter demand, declining consumer country inventories, and geopolitical tension against a backdrop of tight spare capacity are all kept in place.''

The price of heating oil also surged to a record, and natural gas soared 4.9 percent. Platinum jumped to the highest ever, while the dollar fell as much as 1 percent against a basket of six major currencies after the measure tumbled 8.3 percent in 2007.

The Fed reduced the overnight lending rate three times since Sept. 18 from 5.25 percent to 4.25 percent on concern a housing slump will lead to a slowdown in the U.S. economy.

The UBS Bloomberg CMCI gauge of 26 raw materials has climbed for the past six years. It was up 28.31 to 1,305.19 today. The Reuters/Jefferies CRB Index gained 2.3 percent to a record 366.86.

Inflation Concerns

The Fed's interest-rate cuts sparked inflation concerns. Some investors buy commodities to hedge against rising consumer prices, and the falling dollar makes raw materials priced in the U.S. currency cheaper for buyers holding other currencies.

``Anything priced in dollars has to move higher to make up for the declining dollar,'' said Ron Goodis, futures trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``It looks like lower interest rates as far as the eye can see. People are putting their money where their memory is, and that's in commodities'' after the rally last year, he said.

Rising wealth from Shanghai to Sao Paulo is leading to better diets and straining grain supplies just as record energy prices boost sales of biofuels. Wheat and soybean prices jumped almost 80 percent last year, and corn last month climbed to the highest in 11 years.

Soybeans, Wheat

Soybean futures for March delivery rose 34.5 cents, or 2.8 percent, to $12.4875 a bushel today on the Chicago Board of Trade. The price earlier reached $12.64, the highest since June 1973. U.S. farmers planted the fewest acres in 12 years to sow the most corn since 1944.

Wheat futures for March delivery rose 30 cents, the most allowed by the CBOT, or 3.4 percent, to $9.15 a bushel. The price reached a record $10.095 a bushel on Dec. 17 as global demand eroded worldwide inventories.

The increase in the UBS Bloomberg CMCI last year outpaced a 7.1 percent gain in the Morgan Stanley Capital International World Index, which measures stocks in 23 major markets.

U.S. equities fell today after a decline in manufacturing heightened concern the economy is headed for a recession. The Standard & Poor's 500 Index dropped 1.4 percent.

`Big Bubble'

The rally in energy prices might end should higher fuel costs stifle growth in the U.S. and demand from China ease, Michael Fitzpatrick, vice president of energy risk management at MF Global Ltd. in New York, said in an interview on Bloomberg Radio.

``It's a very, very big bubble,'' Fitzpatrick said. ``The higher energy prices go, it's going to eat into every aspect of the economy and consumers are going to start to pull in and curtail their spending.''

Newmont Mining Corp., the world's second-largest gold producer, rose 7.3 percent in New York Stock Exchange composite trading, the biggest gain in the S&P 500. Barrick Gold Corp., the No. 1 producer, surged 9.3 percent in Toronto.

Energy was the only industry group in the S&P 500 to rise.

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