Commodities Surge, Led by Oil at $100, Record Gold

Commodities Surge, Led by Oil at $100, Record Gold

Jan. 2 (Bloomberg) -- Crude oil reached a record $100 a barrel and gold soared to the highest ever, leading a commodity surge as the dollar's slump against major currencies enhanced the appeal of raw materials as hedges against inflation.

Spot gold climbed to $860.10 an ounce, and wheat and soybeans jumped more than 3 percent. The UBS Bloomberg Constant Maturity Commodity Index gained as much as 2.2 percent today after climbing 22 percent in 2007. The dollar fell on speculation the Federal Reserve will cut borrowing costs in an attempt to bolster the U.S. economy.

``The most salient buzzword in 2008 is going to be inflation,'' said Michael Pento, senior market strategist for Delta Global Advisors Inc. in Huntington Beach, California, which manages about $1.4 billion. ``The Fed is lowering interest rates and vastly increasing the money supply. They're further fueling inflationary expectations.''

Crude-oil futures for February delivery rose $3.50, or 3.7 percent, to $99.48 a barrel at 2:13 p.m. on the New York Mercantile Exchange. The previous record was $99.29 on Nov. 21.

Gold for immediate delivery surged $23.10, or 2.7 percent, to $856.80 an ounce. Gold futures for February delivery rose $22, or 2.6 percent, to $860 an ounce on the Comex division of the Nymex, a record settlement. The metal earlier reached $864.90, the highest for a most-active contract since Jan. 21, 1980, the day futures reached a record $873.

Nigerian Oil Output

Crude oil rose on concern that violence may further cut output in Nigeria, Africa's biggest producer, and on speculation U.S. petroleum inventories fell for a seventh week.

``This is the culmination of everything that we talked about last year,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``Various geopolitical problems have deteriorated overnight, in particular Nigeria and Pakistan. Commodities, and in particular oil, have become havens in a dangerous world.''

The price of heating oil also surged to a record, and natural gas soared as much as 4.6 percent. Platinum jumped to the highest ever, while the dollar fell as much as 1 percent against a basket of six major currencies after the gauge tumbled 8.3 percent in 2007.

The Fed reduced the overnight lending rate three times since Sept. 18 from 5.25 percent to 4.25 percent on concern a housing slump will lead to a slowdown in the U.S. economy. The UBS Bloomberg CMCI gauge has climbed for the past six years. It was up 27.22, or 2.1 percent, to 1,304.11 today. A close at that price would mark a record.

Inflation Concerns

The interest-rate cuts sparked inflation concerns. Some investors buy commodities to hedge against rising consumer prices, and the falling dollar makes raw materials priced in the U.S. currency cheaper for buyers holding other currencies.

``Anything priced in dollars has to move higher to make up for the declining dollar,'' said Ron Goodis, futures trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``It looks like lower interest rates as far as the eye can see. People are putting their money where their memory is, and that's in commodities'' after the rally last year, he said.

Rising wealth from Shanghai to Sao Paulo is leading to better diets and straining grain supplies just as record energy prices boost sales of biofuels. Wheat and soybean prices jumped almost 80 percent last year, and corn last month climbed to the highest in 11 years.

Soybeans, Wheat

Soybean futures for March delivery rose 35.75 cents, or 2.9 percent, to $12.50 a bushel on the Chicago Board of Trade. The price earlier reached $12.64, the highest since June 1973.

U.S. farmers planted the fewest acres in 12 years to sow the most corn since 1944. China imposed an export tax on grains to ensure domestic supplies and curb increases in food prices.

Wheat futures for March delivery rose 30 cents, the most allowed by the CBOT, or 3.4 percent, to $9.15 a bushel. The price reached a record $10.095 a bushel on Dec. 17 as global demand outpaced dwindling worldwide inventories.

Drought hurt crops in Canada and Australia and excessive rain curbed yields in the U.S.

BLOOMBERG