* 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 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
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
"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
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
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
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
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%