By Chanyaporn Chanjaroen - Sep 14, 2012 9:38 AM GMT+0400
Commodities are set for the longest run of weekly gains since 2010 after the U.S. Federal Reserve announced a third round of quantitative easing to aid the largest economy, fueling expectations raw-material use will rise.
The Standard & Poor’s GSCI Spot Index of 24 raw materials gained as much as 0.8 percent to 692.62, the highest level since April 4, and was 692.5 at 6 a.m. in London. That would make a 2.3 percent increase this week, a seventh weekly advance and the best run since October 2010. Gold futures advanced to a six- month high, copper surged and oil rallied to the most expensive in four months in New York. The U.S. is the top oil user.
The Fed said yesterday it will expand holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month and hold the benchmark interest rate near zero “at least through mid-2015.” The GSCI Index surged 92 percent from December 2008 through June 2011 as the Fed bought $2.3 trillion of debt in the first two rounds of quantitative easing.
“The current commodity rally follows assurances by the U.S., EU and China that policies are turning more accommodative,” Sijin Cheng, a commodities analyst at Barclays Plc in Singapore, said in an e-mail today. “Market sentiments are quickly shifting to a ‘risk-on’ mode.”
Commodities gained 7.4 percent this year as the MSCI All- Country World Index (MXWD) rose 12.6 percent and Treasuries returned 1.7 percent, a Bank of America Corp. index shows. Expanding the Fed’s balance sheet tends to weaken the dollar, which traded at a four-month low against the euro, making commodities priced in the greenback cheaper for holders of other currencies.
Wen’s Pledge
China’s Premier Wen Jiabao said on Sept. 11 that there’s more room for stimulus measures to support economic growth in the largest user of base metals. The country has refrained from easing monetary policy since cutting interest rates in June and July. European Central Bank President Mario Draghi said on Sept. 6 that policy makers agreed to an unlimited debt-purchase program to tame the region’s debt crisis.
Oil for October delivery gained as much as 1.2 percent to $99.46 a barrel on the New York Mercantile Exchange, the highest intraday price since May 4. December-delivery gold climbed as much as 0.5 percent to $1,780.20 an ounce on the Comex in New York, the highest level since Feb. 29.
Open interest, or outstanding contracts, of raw materials tracked by the Standard & Poor’s GSCI Index totaled 11.03 million contracts as of Sept. 12, the highest level since June, according to data compiled by Bloomberg. Expanding open interest at the time of rising prices usually indicates investors are adding bets on further gains.
Oil Reserves
Escalating unrest in the Middle East and North Africa, which hold more than half of the world’s oil reserves, fueled concern supplies may be disrupted. Protesters attempted to storm the U.S. embassy in Yemen and demonstrators marched in Egypt and Iran against a film seen as insulting to Islam. Iran is raising tension by expanding its nuclear program, according to Robert Wood, the U.S. envoy to the International Atomic Energy Agency.
“Middle East geopolitical concerns should add a premium of about $5 to $6” a barrel, saidJonathan Barratt, chief executive officer of Barratt’s Bulletin, a commodity newsletter in Sydney, referring to oil.
Raw materials as gauged by the S&P GSCI Enhanced Commodity Index Total Return may climb a further 10 percent led by crude on concerns of supply constraints, Jeffrey Currie, head of commodity research at Goldman Sachs Group Inc. said Sept. 6. The index rose 6.5 percentin the year to yesterday.
Copper jumped to the highest level in four months, leading a rally in base metals on the London Metal Exchange. The metal for delivery in three months surged as much as 3.5 percent to $8,355 a metric ton, the highest price since May 2.
To contact the reporter on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net
To contact the editor responsible for this story: Jake Lloyd-Smith at jlloydsmith@bloomberg.net
