Commodities - except gold - get ride from $120 oil

By Barani Krishnan - Analysis

NEW YORK (Reuters) - Oil at $120 a barrel is helping create new peaks in non-energy commodities other than gold, just as some investors were expecting a sector-wide correction from a stronger dollar.

Corn futures hit all-time highs in Chicago on Tuesday after historic peaks set by copper a day earlier in New York.

The two markets rallied this week as crude oil in New York rocketed past $120 a barrel, touching $122.73 on Tuesday for a second record-breaking session amid increasing supply concerns and geopolitical tensions.

Adding fuel to the rise in oil prices -- one of the main sources for inflation in everything from gasoline to bread -- was a forecast from investment bank Goldman Sachs putting a high of $200 a barrel on crude in the next two years.

"I think oil is just pulling everything higher and because of that, all these commodities have turned around again," said Edward Meir, energy and metals analyst at commodities brokerage MF Global in New York.

"The dollar was giving the bears some hope last week when it rallied. That seems to have stalled and we seem to be back to the original kind of trading strategy, which is go short the dollar and long the commodities," Meir said.

The dollar was down a second straight day against a basket of major currencies after rising strongly in two previous sessions after the U.S. Federal Reserve signaled that it may be ready to stop interest rate cuts that began in September.

CORN, COPPER ALREADY AT RECORD

In corn, the July 2009 futures contract on the Chicago Board of Trade CN9 hit a record $6.60-3.4 a bushel. Traders said aside from crude oil and a weak dollar, the market was propped up by the slow progress of U.S. corn plantings.

"The best scenario for corn farmers is for the market to top out right here and head back down to the $4.50/bushel to $5.00/bushel area and consolidate and let the end-users readjust to this new high-priced reality," said Shawn Hackett, a Florida-based investment adviser.

"If instead corn prices escalate to the $7.00/bushel to $10.00/bushel area (which it could do in an instant), then end-user demand will be absolutely destroyed and the hangover of such demand destruction will reverberate for years to come," Hackett said in a commentary.

July copper futures on the COMEX metals division of the New York Mercantile Exchange surged almost 12 percent to $4.2605 a lb on Monday -- a lifetime high for any U.S. copper contract -- driven by the crude rally and a near three-week strike at the world's largest copper mining firm in Chile. By Tuesday's close, COMEX's July copper had eased to $3.8785 a lb.

Scott Meyers, senior trading analyst with Pioneer Futures in New York, forecast a near-term range of $3.82 to $4.05 for the contract.

Copper for delivery in three months on the London Metal Exchange -- a market more closely followed than COMEX -- ended at $8,565 per ton on Tuesday, down $110 from its previous session.

MF Global's Meir said he expected LME's three-month copper to find resistance at $8,800 a ton -- just below April's record high of $8,880 -- with news the Chile strike was over.