Gold price hits record high, oil rallies on Fed stimulus

5th November 2010, Comments 0 comments

Gold hit a record peak close to 1,400 dollars an ounce and oil struck the highest level since late 2008 this week after the US Federal Reserve agreed to pump the world's biggest economy with fresh stimulus.

Sugar prices reached levels not seen for nearly 30 years on supply concerns.

The US Federal Reserve on Wednesday announced plans to launch a 600-billion-dollar (423-billion-euro) asset-buying plan, or quantitative easing (QE), to bolster the nation's sluggish economic recovery.

That was slightly higher than market expectations for about 500 billion dollars of additional QE funds, while the Fed also maintained its ultra-low interest rates at zero to 0.25 percent.

Under the arrangement, the central bank buys bonds from banks, thereby supplying them with cash for lending. The fresh stimulus has been dubbed QE2.

The announcement meanwhile weighed on the dollar, causing investors to invest heavily in dollar-denominated commodities, as they became cheaper for holders of other currencies.

"The trajectory of price moves this week can be divided into the days before and after QE II," said Barclays Capital analyst Sudakshina Unnikrishnan.

"Post the QE II announcement, commodity prices have gained significant momentum to test higher, buoyed by a weaker dollar and positive sentiment. "However, we would emphasise that the markets with the strongest fundamentals have posted the most gains. Notably, gold is at an all-time high, copper at a two-year high, while crude oil has risen close to its highest level this year," she added.

Investors also reacted to official data on Friday that showed the United States enjoyed a mini jobs boom in October, snapping a four-month streak of payroll losses but not enough to dent the high unemployment rate.

The Labor Department reported the creation of 151,000 nonfarm jobs in October, much better than expected, and the jobless rate as expected remained unchanged at 9.6 percent for the third month in a row.

PRECIOUS METALS: Gold hit a record high of 1,398.25 dollars an ounce on Friday and in its wake sister metal silver nailed a 30-year peak of 26.90 dollars an ounce.

"Currency wars, quantitative easing and global economic uncertainty all pose risks to investors. To protect themselves, many have sought the safety of gold," said Anthony Grech, an analyst at trading firm IG Index.

"Silver has the potential to continue outperforming gold, with the metal likely to be driven by increasing industrial use and investment demand."

By late Friday on the London Bullion Market, gold surged to 1,395.50 dollars an ounce at the late fixing, from 1,346.77 dollars a week earlier.

Silver advanced to 26.14 dollars an ounce from 23.96 dollars.

On the London Platinum and Palladium Market, platinum rallied to 1,764 dollars an ounce from 1,700 dollars.

Palladium increased to 687 dollars an ounce from 640 dollars.

OIL: Oil prices rocketed, reaching two-year highs on Friday in New York.

Ahead of positive US jobs data, New York crude struck 87.22 dollars a barrel -- the highest point since October 2008. In London, Brent crude oil reached a six-month high of 88.80 dollars.

Oil was rallying "thanks to increased investor risk appetite and the weaker US dollar," the Commonwealth Bank of Australia said in a report.

"The US Federal Reserve's announcement ... boosted commodity market sentiment and supported prices across the board," it added.

By late Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in December soared to 88.10 dollars a barrel from 82.10 dollars a week earlier.

On the New York Mercantile Exchange, Texas light sweet crude for December surged to 86.77 dollars a barrel from 83.31 dollars.

BASE METALS: Copper reached the highest levels for more than two years, at 8,769 dollars a tonne.

"The Fed's decision to buy more US treasuries ... has been interpreted in the case of metals to mean that economic growth in the US will be supported in every possible way and thus also the demand for commodities," said analysts at Commerzbank.

By late Friday on the London Metal Exchange, copper for delivery in three months jumped to 8,730 dollars a tonne from 8,198 dollars a week earlier.

Three-month aluminium grew to 2,466 dollars a tonne from 2,340 dollars.

Three-month lead climbed to 2,525 dollars a tonne from 2,449 dollars.

Three-month tin fell to 26,600 dollars a tonne from 26,675 dollars from a week earlier.

Three-month zinc increased to 2,529 dollars a tonne from 2,428 dollars.

Three-month nickel rallied to 24,690 dollars a tonne from 22,920 dollars.

SUGAR: Sugar futures hit the highest point in almost three decades in New York trade on Friday.

The price of unrefined sugar for delivery in March jumped to 32.30 US cents a pound -- the best level since January 1981.

A tonne of white sugar reached a 23 year peak of 788 pounds a tonne in London.

Sugar, which has shot up by 140 percent since May, is used mainly in the food and drinks sector but is also used for the production of ethanol -- a cheaper version of gasoline, or motor fuel.

"New highs ... and the bulls have the wind at their backs," said sugar analyst Thomas Kujawa at the Sucden brokerage in London, in reference to investors who are betting prices will go higher.

"It all seems to be going their way with the dollar on fresh lows and American economic policy makers seemingly coming to the conclusion that all they can do is fresh quantitative easing, which consequently means, for us, there's more money around chasing the same amount of commodities."

In recent weeks and months, sugar has also rocketed higher as floods and droughts hamper production of the widely-used raw material.

"Earlier expectations (of a surplus this year) were dashed by an impressive flow of bad news on the production front," said Emmanuel Jayet, analyst at French bank Societe Generale.

"From floods in Pakistan to drought in Russia and dryness in Brazil, the already limited surplus forecast had to be revised down.

"With the surplus now seen around two million tonnes ... it forced the market to realize that the very tight supply situation of the 2009/2010 season would last much more than anticipated," Jayet added.

By Friday on the New York Board of Trade (NYBOT), the price of unrefined sugar for delivery in March jumped to 31.81 US cents a pound from 29.09 cents a week earlier.

On LIFFE -- London's futures exchange -- the price of a tonne of white sugar for December rallied to 776 pounds from 723.20 pounds.

COFFEE: Coffee prices reached multi-year peaks owing to tight supplies.

"Low stock levels and delays in harvesting in a number of countries due to extended rains will continue to intensify concerns about short-term market supply," the International Coffee Organization said this week.

By Friday on NYBOT, Arabica for delivery in December stood at 204.20 cents a pound compared with 202.60 cents the previous week.

On LIFFE, Robusta for January gained to 1,981 dollars a tonne from 1,959 dollars.

COCOA: Cocoa futures dropped amid abundant supplies of the commodity.

By Friday On NYBOT, cocoa for delivery in December fell to 2,720 dollars a tonne from 2,801 dollars a week earlier.

On LIFFE, cocoa for December weakened to 1,795 pounds a tonne from 1,858 pounds.

GRAINS AND SOYA: Soya prices struck fresh two-year highs.

By Friday on the Chicago Board of Trade, January-dated soyabean meal -- used in animal feed -- stood at 12.79 dollars a bushel from 12.36 dollars.

Maize for delivery in December climbed to 5.88 dollars a bushel from 5.82 dollars the previous week.

Wheat for December was flat at 7.17 dollars.

© 2010 AFP

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