Commodities rally on prospects for stronger economic growth should Fed cut rates
NEW YORK -- Commodities climbed broadly today, led by gains in agriculture, energy and precious metals as investors bet that an anticipated interest rate cut will stimulate economic growth and raise demand for raw materials.
Investors largely expect the Federal Reserve to lower its benchmark federal funds rate Tuesday, a move that would feasibly improve prospects for economic expansion and the demand for energy, metals and agriculture products that sustain growth. While trading on Wall Street remained cautious as stocks slipped, investors sent gold, oil and wheat prices sharply higher.
Oil prices hit an all-time high for the fourth consecutive session. Wheat prices advanced to the daily maximum permitted by the Chicago Board of Trade.
Gold prices advanced as stocks stumbled and the U.S. dollar fluctuated against other world currencies. Stock investors, skittish ahead of the Fed meeting, sent equities lower. The consensus is for a quarter-point cut in the federal funds target rate after more than a year at 5.25 percent, although some forecast a bigger half-point cut. Still, no move is assured and nervous investors turned to precious metals.
December gold rose $6 to settle at $723.80 an ounce on the New York Mercantile Exchange, after jumping as high as $728.90 in earlier trading.
Although the U.S. dollar rebounded slightly Monday, the greenback's general trend in world currency markets has been a declining one. That has increased investor interest in gold, which is seen as a hedge against inflation.
"The dollar has weakened on expectations the Fed will have to cut interest rates," said Sean Simko, senior portfolio manager of SEI Fixed Income Management. "That would continue to put downward pressure on the dollar, which will support commodities markets such as precious metals."
Silver for December delivery added 19.5 cents to settled at $12.90 an ounce, while October platinum gained $3.40 to $1,302.60 an ounce.
Industrial metals were mixed on the London Metal Exchange, with nickel prices pulling ahead while zinc prices fell sharply. Copper slipped in London, while rising modestly in New York. Nymex copper for December delivery rose 1.55 cents to $3.408 a bushel.
Meanwhile, oil prices surged to a high of $80.70 a barrel, then slipped back to close at a record $80.57, as traders bet that the expected interest rate cut will spur economic activity and boost demand for energy. Higher oil prices are "a sign of confidence the economy will stabilize and a sign of confidence the Fed will lower interest rates" to engender growth, said Phil Flynn of Alaron Trading Corp. in Chicago.
Flynn added that energy trading also reflected Monday's expiration of options contracts, which can raise volatility in either direction.
In Chicago, agriculture futures rallied as wheat began the week on a higher note, extending eight straight weeks of gains. Concerns about a troubled Australian wheat crop underpinned prices. Analysts expect Australia's harvest to range from 18 million to 20 million tons, compared with more typical production of 26 million to 28 million tons, said DTN analyst Gary Wilhelmi; the Australian government presents its estimates on Tuesday.
Supplies of wheat worldwide have grown exceedingly tight, as poor weather damaged crops in major producing region this year. December wheat jumped 30 cents to $8.76 a bushel on the Chicago Board of Trade. The contract is still of its record high of $9.07 a bushel on Wednesday.
Soybean traders also looked to developments in the Southern Hemisphere, where concerns about seed germination in the Brazilian crop have arisen. November soybeans climbed 13.75 cents to $9.685 a bushel in midday trading. Corn prices rose in sympathy, as the December contract edged up 3 cents to $3.52 a bushel.