COMMODITIES-Precious metals, oil rebound from early dives

Mon May 20, 2013 4:44pm EDT

* Gold shoots up from 1-month low and 7 days of losses

* Silver hits Sept 2010 low before rebounding

* Oil reverses early losses to end higher

* Raw sugar near 3-year low, arabica coffee down for 5th day

By Barani Krishnan

NEW YORK, May 20 (Reuters) - Precious metals markets jumped on Monday at the end of a roller-coaster session that opened with a gut-wrenching dive in silver prices, and oil overcame a weak start to close up too.

Copper prices hit their highest in almost a week, helped by a weaker dollar and shrinking inventories of the metal in Asia, although concerns about China's growth capped gains.

On the agricultural side, U.S. soybean futures gained more than 1 percent as investors bought the front-month contract that represented the older soy crop and sold the forward new-crop months on expectation there will be plentiful supplies by fall this year.

Soft commodities mostly bucked the broadly higher trend across the complex, with raw sugar nearing a three-year low on strong cane crushing in top producer Brazil and arabica coffee closing down for a fifth straight day.

The Thomson Reuters-Jefferies CRB index, a bellwether for commodity prices, settled up nearly half a percent at a one-week high. Fourteen of the CRB's 19 components ended the session higher, with silver and gold each rising nearly 3 percent to lead gains.

GOLD, SILVER LURCH HIGHER

After trading lower through most of the day, gold suddenly lurched more than $10 an ounce higher around noon U.S. time, with traders citing a wave of pent-up short-covering after seven consecutive days of losses. COMEX silver futures had also plunged more than 9 percent after a big sell order at the open, before turning higher as technical buy signals were triggered, they said.

The spot price of gold, which early in the day threatened to test a 1-1/2-year low touched last month, was up $36 or 2.6 percent by 20:10 GMT, snapping a seven-session losing streak. Silver's most-active contract on COMEX, July, settled up 1 percent at $22.582 an ounce, after hitting a September 2010 low of $20.25.

The whipsaw session jolted traders and may signal new support for battered precious metals markets.

"A whole load of short-covering came in this morning as people got unnerved looking at the way some of the precious charts had tanked," said Adrian Day at Adrian Day Asset Management in Annapolis, Maryland.

"I'm a buyer at these levels," said Day, whose firm manages about $200 million in commodities, about a third of that in gold holdings.

Notwithstanding the rebound on the day, gold is down 17 percent for this year while silver has lost 25 percent as money rotated out of precious metals into equities and the U.S. dollar amid an improving outlook for the U.S. and global economies.

Hedge funds and other major speculators in commodities pulled $1.4 billion from the U.S. gold futures market in the week to May 14, Reuters calculations of data released by the Commodity Futures Trading Commission showed.

The case for buying gold as an inflation hedge has also been weakened by speculation lately that the Federal Reserve may end sooner rather than later its ultra-low interest rates and bond-buying programs to stimulate the U.S. economy.

Investors are awaiting congressional testimony on the U.S. economy by Fed Chairman Ben Bernanke and minutes of the central bank's April meeting, due later in the week.

OIL REBOUNDS, BUT MORE DOWNSIDE SEEN

Oil prices reversed early losses to trade higher by late morning as the dollar weakened, but ample supplies of crude oil limited gains.

"The dollar's move has been pretty strong lately, maybe you're seeing a little more profit taking," said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut.

The U.S. dollar fell against a basket of six currencies , making crude oil and other dollar-denominated commodities cheaper for holders of foreign currencies.

Brent crude for July closed up 16 cents per barrel, or 0.2 percent, at $104.80. U.S. crude futures settled up 69 cents, or 0.7 percent, at $96.71 per barrel.

"It looks like the bulls are trying to start the rally up again. I would think the market meets greater resistance because we have weak underlying fundamentals," McGillian said.

The closer the market pushes to the 2013 U.S. crude oil high of $98 per barrel, the more resistance it faces, he added.

The International Energy Agency expects weaker demand growth for oil in 2013, along with greater supply.

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