Commodities advance to highest this year as oil to gold rally

[NEW YORK] Commodities climbed to the highest this year as oil extended gains on speculation the glut in the US will ease.

The Bloomberg Commodity Index of 22 raw materials rose as much as 0.4 percent to 105.1778, the highest since Dec. 31, and was at 105.1007 by 1:10 pm in Singapore. West Texas Intermediate crude extended its advance above US$60 a barrel after closing on Wednesday at the highest level since December. Gold rose as higher energy prices boosted speculation US inflation will start to pick up.

Raw-material prices have rebounded about 9 percent since reaching a 12-year low in March as crude rallied, the dollar fell and speculation increased that China may add to stimulus. The gains in energy were spurred as US drillers idled rigs. The BCOM gauge has still plunged more than 50 per cent from its record in 2008, after a decade-long bull market encouraged farmers, miners and oil producers to ramp up supplies.

"We're seeing commodities now respond to lower prices and that's generally across the board, not just oil," Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney, said by phone. "Investors are starting to rethink the supply story and the US dollar will probably weaken dramatically over the course of the next two quarters."

The Bloomberg Dollar Spot Index lost 0.2 per cent, falling for a second day. The gauge is heading for a fourth straight week of declines, increasing the appeal of commodities as alternative investments.

China's central bank has already loosened monetary policy, and the manufacturing gauge published Monday that signaled contraction for April fuelled anticipation that more measures will come. The nation is the world's top consumer of metals, grains and energy.

West Texas Intermediate for June delivery was 1.8 per cent higher at US$61.47 a barrel on the New York Mercantile Exchange, after climbing as much as 3.7 percent on Tuesday. The most- active contract gained 15 per cent this year as US drillers cut the number of operational oil rigs to the fewest since 2010. Prices are rebounding from a six-year low reached in March.

Gold for June delivery added 0.1 per cent to US$1,194.50 an ounce on the Comex in New York after climbing 1.6 per cent in the past two sessions.

Gold is "finding support from higher energy prices," Australia & New Zealand Banking Group Ltd. said in a note. "Gold is often used as an inflation-hedge and reviving oil prices has fueled expectations that US inflation would start to pick up."

Copper fell to snap the longest rally since 2005 that led the metal into a bull market. Copper for delivery in three months retreated 1.1 per cent to US$6,411.50 a ton on the London Metal Exchange. The metal closed at US$6,480 on Tuesday, up 20 per cent from the closing low of US$5,395 on Jan. 29. Glencore Plc, the third-biggest copper-mining company, said its output from Africa, Australia and South America slid 9 per cent last quarter.

"We still have those production hangovers, but a lot of the gains in commodities now have to do with the Chinese stimulus plan," Fain Shaffer, the president of Infinity Trading Corp. in Indianapolis, said in a phone interview. "With the dollar down, too, that's adding some upward momentum."

BLOOMBERG