COMMODITIES-Fed action sweeps metals, oil to multi-month highs
* Weak dollar, Fed's indefinite stimulus pledge fuels rally * Copper, oil hit 4-month highs; gold 6-month peak * Some say physical demand needed to sustain rally By Barani Krishnan and Eric Onstad NEW YORK/LONDON, Sept 14 (Reuters) - Copper, gold and oil surged to multi-month highs on Friday, a day after the U.S. Federal Reserve announced its latest move to stimulate the world's top economy, spurring expectations for a wave of investment flows into commodity markets. The bellwether 19-commodity Thomson Reuters-Jefferies CRB index hit its highest level since early March, although many analysts doubted that price gains would persist in some sectors like industrial metals unless physical demand picks up. The Fed said on Thursday it will buy $40 billion worth of mortgage debt a month until the U.S. jobs market improves, fueling a rally in risky assets whose prices have languished for months on a dim global economic outlook. The dollar index touched a four-month low, making it cheaper for holders of other currencies to buy commodities priced in dollars. Copper futures and Brent crude oil in London both hit four-month highs as global stocks surged to a 13-month peak. Gold surged to a six-month high, while grains performed more modestly. Investors cheered the Fed decision not to set a limit on its third round of quantitative easing, or QE3. Fed Chairman Ben Bernanke said the central bank will purchase bonds until it brings down the unemployment rate, currently at 8.1 percent. "The Fed will be indirectly adding more liquidity into the asset markets and that money will need to go somewhere and part of it will go into commodities," said Olivier Jakob, at Petromatrix in Zug, Switzerland. But other analysts doubted whether commodities could sustain higher prices absent a recovery in demand, especially in Europe and China. "The Fed's move is certainly bullish for commodities, but I don't think we want to assume that the bullishness in commodities is as open ended as the QE3 program itself," said Vishnu Varathan, market economist at Mizuho Corporate Bank. "The decisive thing is going to be a question of how things in the euro zone and China will pan out because if China's demand doesn't recover as quickly then a lot of this euphoria is going to fade." MIDDLE EAST PREMIUM FOR OIL Other factors in commodities include violence in the Middle East, which has roiled the oil market, and crop weather, especially droughts in the United States and Russia that have sent grains and soybeans surging. These factors were not present during earlier QE rounds by the Fed in 2008 and 2010. Escalating anti-U.S. protests over a film demonstrators consider blasphemous to Islam kept the geopolitical risk of oil supply disruption in North Africa and the Middle East in focus on Friday, along with the dispute over Iran's nuclear program. "The Middle East premium is starting to be thrown into the oil price a little bit, adding about $5 to the price," said Jonathan Barratt, chief executive of BarrattBulletin, a Sydney-based commodity research firm. Brent crude rose for a seventh straight session, peaking at a May high of $117.95 a barrel before settling at $116.66, up 0.7 percent on the day. U.S. crude futures hit a four-month high of $100.42. COPPER BIGGEST GAINER Base metals were the biggest gainers among major commodities, with three-month copper on the London Metal Exchange rising as much as 4 percent to $8,408 a tonne, its loftiest since early May. U.S. copper futures' key December contract in New York rose more than 3 percent to settle at above $3.83 a lb. It rose over 5 percent on the week. Lead and zinc surged to their highest levels in more than six months and aluminium hit a 5-1/2 month high. Attention would now turn to top metals consumer China, which accounts for 40 percent of copper demand, analysts said. "We would caution that we remain very skeptical of the longer-term implications of this. There is a likelihood that the price gains will not be sustained and prices will fall back again as the demand situation is still very poor," said Ross Strachan, economist at Capital Economics. Gold was on target to extend its winning streak to a fourth straight week. Many analysts also expect a correction in gold prices in the short term, but are still optimistic about a market rebound before the year-end. The spot price of gold, or bullion, hit a six-month high of $1,777.51 an ounce, before pulling back to just above $1,771, for a 0.3 percent gain. Gold rose 2 percent on Thursday. "After the move we had, not just yesterday, but over the last two or three weeks I think it would be natural to look for a period of consolidation," Tom Kendall, an analyst at Credit Suisse in London, said, referring to gold. But Kendall said he expected gold to be getting towards "at least the $1,850 level" before the end of the year. LESS EXCITEMENT IN GRAINS; WHEAT OUTPERFORMS Grains markets were comparatively quiet, with corn, soybeans and wheat prices having rallied far earlier than most commodities due to the drought that ravaged the U.S. Midwest farm belt and destroyed much harvest potential. Wheat outperformed the pack, with the December futures contract in Chicago rising 2.5 percent to above $9.24 a bushel. Soybeans, which hit record highs of nearly $17.90 a bushel earlier this month, fell in Friday's session, with November futures ending down half a percent at below $17.40 as harvest picked up for the crop. "I think we're at reality now where we're at harvest," Don Roose, president of Iowa-based U.S. Commodities, said, referring to soybeans. Arabica coffee extended gains to a seven-week high, as soft commodities were also swept up in the Fed-fueled rally. Raw sugar traded above 20 cents for the first time since end of August. Cocoa futures closed higher too. Prices at 3:40 p.m. EDT (1940 GMT) LAST/ NET PCT YTD CLOSE CHG CHG CHG US crude 98.97 0.66 0.7% 0.1% Brent crude 116.76 0.88 0.8% 8.7% Natural gas 2.943 -0.094 -3.1% -1.5% US gold 1772.70 0.60 0.0% 13.1% Gold 1771.24 4.95 0.3% 13.3% US Copper 385.15 12.45 3.3% 12.1% Dollar 78.845 -0.417 -0.5% -1.7% CRB 320.930 3.480 1.1% 5.1% US corn 786.00 8.25 1.1% 21.6% US soybeans 1740.00 -8.00 -0.5% 45.2% US wheat 936.50 21.75 2.4% 43.5% US Coffee 181.10 2.25 1.3% -20.6% US Cocoa 2642.00 29.00 1.1% 25.3% US Sugar 19.91 0.20 1.0% -14.3% US silver 34.603 -0.113 -0.3% 24.0% US platinum 1712.70 34.20 2.0% 21.9% US palladium 698.80 10.30 1.5% 6.5%
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