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Gold, Oil Lead Surge in Commodities

Investors flocked to commodities, pushing gold to a record and oil near a two-year high, amid worries about the impact of the Federal Reserve's monetary-stimulus plan on the dollar.

The program aims to stimulate the economy by expanding the money supply, but excess liquidity also could drive up inflation and depreciate the dollar without generating growth. Either scenario would support higher commodity prices, either by increasing demand or making dollar-denominated assets cheaper to buy using other currencies.

"The dollar is under attack and people are moving money from the dollar into other investments," said Ira Epstein, managing director of the Ira Epstein division at the Linn Group. "Its not just gold, it's commodities across the board."

Many commodities have rallied recently on concerns about tightening supplies, in addition to the potential impact of the Fed stimulus.

Cotton's surge began over the summer, well before the Fed began hinting at another round of stimulus, when heavy rain harmed harvests in Pakistan and China.

Corn prices were up 1.6%, at $5.90 a bushel Thursday as the market anticipates next week's supply and demand report from the U.S. Department of Agriculture, which is expected to include another cut in U.S. production.

Sugar, too, has jumped on worries about dry weather affecting the harvest in Brazil, the world's biggest exporter.

"We anticipate further crude draws lie ahead, which together with a still favorable [economy] should lift prices into year-end," wrote Hussein Allidina, head of commodity research with Morgan Stanley, in a note where he predicted oil would surpass $100 a barrel next year. Read more at professional.wsj.com

 

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