Commodities Head for Biggest Monthly Rally Since July 1974

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30 May 2009

Commodities headed for the biggest monthly rally in 34 years, led by energy, as the slumping dollar boosted demand for raw materials as a hedge against inflation. In May, the Reuters/Jefferies CRB Index of 19 energy, metal and agricultural prices has gained 14 percent, the most since July 1974. The dollar was poised for the biggest monthly drop since August against a basket of six major currencies.
Signs of a recovery in the global economy have spurred demand for fuel, industrial metals and crops. Crude oil was set for the biggest monthly gain in a decade. Gasoline has soared more than 30 percent in May. Gold copper surged, while corn and soybeans reached the highest since September.
“The belief that the world economy is not going down into a black hole anymore has brought a lot of investors back in,” said Peter Sorrentino, who helps manage $13.8 billion at Huntington Asset Management in Cincinnati. “You also have the threat of inflation, and that means that people just want to have hard assets.”
The CRB index gained 1.1 percent to 252.62 at 11:48 a.m. in New York, extending a rally to the highest since November. The dollar was poised for the third straight monthly drop against the currency basket, partly on demand for assets with higher returns.
Investors are seeking a “safe haven from a weaker dollar,” said Stephen Platt, a commodity analyst at Archer Financial Services Inc. in Chicago. “This rally is sustainable, given prospects of the dollar, which is expected to weaken along with other industrialized countries’ currencies.”
Great Depression
The world economy is showing signs of a rebound from the worst recession since the Great Depression after central banks and governments cut interest rates close to zero and spent more than $13 trillion on stimulus programs and rescue measures.
A financial crisis, which started with the collapse of the U.S. property market in 2007, sent the global economy into a recession. Banks and other financial institutions had more than $1.46 trillion of writedowns and credit losses.
Government reports from Japan to India to the U.S. bolstered economic optimism today.
Confidence among U.S. consumers rose this month to the highest level since September, reinforcing signs that the recession is abating. Japan’s industrial production in April jumped the most in 56 years in April, and India’s economy expanded in the first quarter by more than economists forecast.
Reality ‘Disconnect’
Still, U.S. business activity contracted at a faster pace than forecast in May as orders dropped. Unemployment, already at a 25-year high, is forecast to keep climbing and home foreclosures are at a record. Bankruptcy looms at General Motors Corp., the biggest U.S. carmaker.
“I don’t know where all the optimism for the economy is coming from,” said Gijsbert Groenewegen, a partner at Gold Arrow Capital Management in New York. “When you look at housing and autos, all of those things are still weak. There is a disconnect between what the reality for the economy is and what people think.”
Crude-oil futures for July delivery rose $1.10, or 1.7 percent, to $66.18 a barrel on the New York Mercantile Exchange. This month, the price has jumped 29 percent, the most since March 1999.
Gasoline futures for June delivery rose 1.64 cents, or 0.9 percent, to $1.9269 a gallon. In May, the price has surged 31 percent, the most since March 2006.
Today, cotton jumped the most allowed by ICE Futures U.S. in New York. Gold futures topped $980 an ounce, and silver was poised for the biggest monthly gain in 22 years.

Source: Bloomberg