Commodities markets boom
The commodity bull market is back with a vengeance.
An index of 19 commodities surged nearly 3% on Tuesday, its biggest one-day gain since September 2005, as investors and traders kept up their demand amid tight supplies in many raw materials.
Soybean futures prices jumped in Chicago as China bought massive amounts of edible oils to cover its needs after the worst winter in 50 years damaged its oil-seeds crop, analysts said.
Precious metals also soared anew, as did crude oil, cotton and coffee.
Near-term gold futures in New York rallied $23.80, or 2.6%, to $926.60 an ounce, just under the record of $927.10 set on Jan. 28, before a bout of profit-taking pushed prices lower.
The Reuters/Jefferies CRB commodity index rose 11.02 points, or 2.9%, to a record 395.25 on Tuesday. It is up 10.2% year to date.
After rocketing in the first half of this decade, the CRB index pulled back from mid-2006 to last fall as demand cooled somewhat.
This year buyers have flooded back into raw materials despite the threat of slower global economic growth. In some markets, particularly grains, supplies continue to lag basic demand, analysts say.
Orders from China, which is seeking to curb a worsening inflation problem caused by food shortages, helped bid up U.S. soybean futures Tuesday, analysts said. Near-term futures rose 24 cents to a record $13.98 a bushel. The price is up 15% since year-end.
“The real story is the planet is having trouble meeting consumption needs, and prices are responding,” said Gavin Maguire, an analyst at Iowa Grain.
Foreign demand also is being stoked by the weak dollar. Measured against a basket of major foreign currencies, the dollar this year is hovering near its lowest level in more than two decades. Because many commodities are priced in dollars they become cheaper for foreign buyers if the greenback loses value.
Apart from global consumer and industrial demand for raw materials, investors are playing a big role this year in pushing up prices, experts say: Pension funds, other institutions and individual investors are buying into commodity-focused funds to take advantage of higher prices and as a way to diversify portfolios that are dominated by stocks and bonds.
“The commodity complex seems to have become a ‘safe haven’ of sorts, as investors flee the bond and equity markets,” said Edward Meir, a commentator on metals and energy at MF Global in New York.
The Pimco Commodity RealReturn Strategy mutual fund has rocketed 13.9% this year, compared with an 8.1% decline in the Standard & Poor’s 500 stock index.