Gold jumped the most since November and oil exceeded $50 a barrel for the first time in two months on speculation the Federal Reserve’s steps to spur growth will revive demand for commodities as a hedge against inflation.
Gold futures in New York rose as much as $52.50, or 5.9 percent, to $941.60 an ounce after the Fed said it will buy as much as $300 billion of U.S. government bonds, adding to the supply of dollars. Heating oil rallied 4.5 percent, copper gained 4.2 percent and aluminum advanced 3.6 percent.
“Money is being pushed into the system and that’s creating the inflationary threats that the markets are contemplating,” said Daniel Brebner, executive director of commodity research at UBS AG in London. “Commodities are a decent way to hedge against that potential threat. Real estate could be another.”
Before today, the UBS Bloomberg CMCI Index of 26 commodities fell 4.6 percent this year as the global economic slump eroded purchases of cars, homes and other items that contain raw materials. Floor trading of most commodities was closed yesterday at the time of the Fed’s announcement.
Gold was up 4.9 percent at $932.80 on the Comex division of the New York Mercantile Exchange as of 10:20 a.m. in London. Trading closed before the Fed announcement. Silver, platinum and palladium also gained.
Crude oil for April delivery rose as much as $2.11, or 4.4 percent, to $50.25 a barrel on Nymex.
“The action of the Fed yesterday put the U.S. dollar under strong pressure and revived hopes of a quick turnaround in oil demand,” said Carsten Fritsch, a commodity analyst at Commerzbank AG in Frankfurt.
U.S. Crops
Corn, soybeans and wheat gained on the outlook for increased demand for U.S. crops because of a lower dollar. May-delivery wheat advanced as much as 2.6 percent to $5.4375 a bushel. Soybeans for May delivery rose as much as 3 percent to $9.425 a bushel and corn for May delivery jumped as much as 2.5 percent to $3.98 a bushel, the highest since Jan. 27.
The U.S. Dollar Index, up 3.6 percent this year, dropped for an eighth day, the longest stretch in a year, potentially boosting demand for commodities as an alternative asset.
“The Fed’s decision yesterday broke the dollar’s back and henceforth any periods of intra- and inter-day dollar strength is to be sold into rather than weakness bought,” U.S. economist Dennis Gartman wrote in his Gartman Letter today. “This sets the tone for how we shall trade commodities henceforth; bullishly and almost universally so.”
Copper for three-month delivery advanced as much as 5.5 percent to $3,961 a metric ton on London Metal Exchange, the highest since Nov. 10, and was trading at $3,935 a ton at 10:14 a.m. local time.
World Economy
Copper is an indicator for the world economy and sets the pace for other industrial metals because an average of 400 pounds (181 kilograms) is used in homes and 50 pounds in cars, according to the Copper Development Association of Hemel Hempstead, England.
“Markets have become more optimistic about the outlook for the U.S. economy in anticipation that this new policy will improve things,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. “The U.S. dollar has weakened quite dramatically.”
