Commodities Jump on Dollar’s Decline
(09-20) 09:48 PDT NEW YORK, (AP) —
Gold surged to a 27-year high Thursday as investors sought refuge from a tumbling U.S. dollar, which skidded amid expectations that interest rates will keep falling.
The dollar’s decline supported other commodities too, by making dollar-denominated products including crude oil, corn and copper cheaper to foreign buyers. Energy and agriculture futures rose.
In testimony to Congress Thursday, Federal Reserve Chairman Ben Bernanke said turmoil in the credit markets had fostered “significant market stress.” The chairman’s comments provided investors with further insight into the Fed’s move Tuesday to slash its benchmark federal funds rate by a half point to 4.75 percent Д and appeared to raise investor expectations for another cut when the central bank meets in October.
“Global financial losses have far exceeded even the most pessimistic estimates of the credit losses on these loans,” Bernanke said.
While a lower interest rate can stimulate economic activity, the additional liquidity it provides can contribute to inflation because prices tend to rise in a growing economy.
Gold prices topped $745 an ounce, while silver and platinum rallied sharply, in response to the dollar’s decline. The 13-nation euro bought as much as $1.4068 at one point Thursday. The euro’s move over $1.40 Д considered a key psychological threshold Д sparked a buying frenzy in the precious metals market.
December gold climbed $14.30 to $743.80 an ounce on the New York Mercantile Exchange. December silver piled on 46 cents, or 3.5 percent, to $13.565 an ounce, while platinum for October delivery rose $18.50 to $1,327 an ounce.
“People possibly feel that there is more to come” in the way of rate cuts, said Jon Nadler, senior analyst with Kitco Bullion Dealers. The Fed’s decision to slash its benchmark rate by a hefty half percentage point on Tuesday shows “they’re willing to sacrifice part of the dollar’s value to keep the boat afloat, economically speaking.”
Copper futures also gained on the Nymex, rising 1.45 cents to $3.59 a pound, and edged higher on the London Metal Exchange. Other industrial metals were mixed in London following the prior day’s hefty gains. Nickel prices slipped after rising more than 10 percent on Wednesday, while zinc and tin also slipped. Lead prices rose.
In the energy market, light sweet crude for October delivery rose 46 cents to $82.39 a barrel on the Nymex, and gasoline futures rose 1.76 cents to $2.111 a gallon.
Oil prices were bolstered by a government report on Wednesday showing a larger-than-expected drop in U.S. stockpiles of crude. However, the report also revealed relatively stagnant demand for petroleum products, which stands about where it did a year ago. The energy market has recently been in no mood for bearish interpretations of the news, said Chip Hodge, managing director of John Hancock Financial Services in Boston.
“Products demand looks ugly,” he said. “People don’t seem to care.”
Meanwhile, agriculture futures jumped, pushed higher by the dollar’s fall and newly raised concerns about corn supply in China.
Corn prices jumped after China on Thursday said it would tighten controls over the use of corn for industrial purposes, including biofuels production. Development of corn processing industries has been “excessively fast,” a government agency said. The National Development and Reform Commission also said it has requested corn exporters cut shipments “in principle” to ensure a balance between domestic supply and demand.
December corn gained 13 cents to $3.7125 a bushel. Wheat for December delivery added 8 cents to $8.53 a bushel, while November soybeans jumped 19 cents to $9.90 a bushel.
