COMMODITIES-Nine-week rally shows signs of fatigue, gold flat

Fri Aug 24, 2012 5:28pm EDT

* CRB index, down on day, logs eighth weekly rise in 9 wks
    * Some say rally petering out as grains, oil short of highs
    * Gold back in favor with best weekly gains since Jan

    By Jonathan Leff
    NEW YORK, Aug 24 (Reuters) - Commodity markets fell for a
second day on Friday as the longest rally since early last year
showed signs of running out of steam, with grain traders having
adjusted to a drought-stricken crop and oil dealers bracing for
a possible release from strategic crude stockpiles.
    Gold was the outlier, holding steady on the day to secure
its biggest weekly gain since January, with traders looking for
U.S. Federal Reserve Chairman Ben Bernanke to drop more hints
about a possible third round of quantitative easing at the
bank's Jackson Hole, Wyoming, enclave next weekend.
    While other markets succumbed to a degree of technical
selling in subdued summer trade, gold has drawn strength from
breaking out of the $100 range it had held since mid-May and
above its 200-day moving average for the first time since March.
    "That resistance which kept gold in a range in the last
several months should become a new level of support, suggesting
gold is not going down but going higher," said Adam Sarhan, CEO
of Sarhan Capital.
    The Thomson Reuters-Jefferies CRB index, which dipped
0.4 percent, ended the week 0.8 percent higher, its eighth rise
in nine weeks and taking total gains since late June to over 14
percent, the biggest and longest such streak since early 2011.
    Raw materials broke with the broader mood in risk markets
like stocks, which gained modestly, while the euro rebounded
from session lows after central bank sources told Reuters that
the European Central Bank is considering targeting a yield band,
an option gaining favor among central bankers.
    However the decision would not be made before the ECB's
Sept. 6 policy meeting and it was not clear how wide the band
would be or how the ECB would decide when to intervene in the
bond markets. 
    Benchmark Brent crude for October delivery closed at
$113.59 a barrel, falling $1.42, or 1.23 percent after a report
that the International Energy Agency may tap into strategic oil
reserves as early as September after dropping its resistance to
a U.S.-led plan to offset the impact of Iran sanctions.
    But oil was still on track toward the biggest two-month gain
since the start of 2011, up 16 percent since June as deep North
Sea maintenance and hope for further central bank stimulus
stoked prices to the highest since May.
    Corn fell for a third day while soybeans climbed 
just before an after-hours crop tour report showed fields in
even worse condition than the U.S. Department of Agriculture
estimated two weeks ago. Some traders expect prices will have to
scale new peaks in order to curb demand.
    On a front-month basis, corn's blistering 45 percent
surge in June and July -- the biggest such gain since the last
devastating drought in 1988 -- has stalled as traders come to
grips with the sharply reduced harvest.
    
    NARROW, NOT BROAD
    Unlike the broad commodity rallies in recent years, the
latest run-up since June has been focused almost wholly on oil
and grains, with metals and soft commodities sitting it out,
analysts at Barclays noted in a report on Friday.
    "With fundamental risk still tilted to the upside in these
two sectors and anticipation of QE3 starting to boost the more
sluggish precious metals markets as well, we would be very
cautious in fading this rally just yet," they said in a note.
    Gold, one of the world's best-performing assets since 2008,
ran out of steam a year ago after hitting a record above $1,920
an ounce, but has lately shown signs of regaining its mojo. It
is up 3.3 percent so far in August, its best gain since January.
    Trading activity on Friday was light, with grains volume a
third below normal and U.S. crude down a quarter. Dealing may
also be limited on Monday, which is a UK holiday, and through
next week ahead of the Sept. 3 U.S. Labor Day holiday.
    Speculators like big hedge funds, a number of which have
been badly burned in the past few years, have remained largely
on the sidelined in recent months.
    The value of managed money holdings in 22 commodity futures
markets stayed at around $60 billion in the week to Tuesday, the
seventh week in a row at that level, with net flows slipping by
a meager $15 million, according to Commodity Futures Trading
Commission data released on Friday.
    
    FICKLE INVESTORS
    After nearly a decade in which investors steadily plowed
more money into commodity markets, flows have vacillated for
most of the past year, causing some to ask whether the
super-cycle of steadily appreciating prices had ended.
    Barclays estimated that net investor in-flows to commodity
products fell to just $463 million in July, less than a tenth as
much as June, although total assets in the market rose $16
billion to more than $400 billion due to price appreciation.
    Precious metals saw the greatest out-flow, while a
relatively small $400 million flowed into agricultural markets,
despite the onset of the worst U.S. drought in five decades.
    "Investors continue to regard all growth-sensitive assets
with caution at present and that is hampering commodities, with
the situation made worse by the particular sensitivity of
commodities to China where fears of a hard landing and a
potentially sharp contraction in commodity imports remains at
the forefront of investors' concerns," they said.

 Prices at 4:45 p.m. EST (2045 GMT)      
                             LAST/      NET    PCT     YTD
                             CLOSE      CHG    CHG     CHG
 US crude                    95.98    -0.29  -0.3%   -2.9%
 Brent crude                113.38    -1.63  -1.4%    5.6%
 Natural gas                 2.702   -0.100  -3.6%   -9.6%
 
 US gold                   1672.90     0.10   0.0%    6.8%
 Gold                      1669.40    -0.64   0.0%    6.8%
 US Copper                  348.35    -0.90  -0.3%    1.4%
                               
 Dollar                     81.633    0.273   0.3%    1.8%
 CRB                       306.040   -1.200  -0.4%    0.2%
 
 US corn                    808.50    -5.75  -0.7%   25.1%
 US soybeans               1724.25    18.25   1.1%   43.9%
 US wheat                   898.50    -5.75  -0.6%   37.6%
 
 US Coffee                  162.90     1.05   0.6%  -28.6%
 US Cocoa                  2397.00    12.00   0.5%   13.7%
 US Sugar                    19.58    -0.01  -0.1%  -15.7%
 
 US silver                  30.621    0.165   0.5%    9.7%
 US platinum               1553.40    -0.50   0.0%   10.6%
 US palladium               652.15    -4.45  -0.7%   -0.6%
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