Bloomberg News

Commodities Rise to Four-Week High as Fed Signals More Stimulus

July 13, 2011

July 13 (Bloomberg) -- Commodities rose to a four-week high as Federal Reserve Chairman Ben S. Bernanke indicated he may provide more U.S. economic stimulus, driving down the dollar and boosting demand for raw materials as a hedge against inflation.

Gold climbed to a record and silver surged the most since March 2009, partly as Europe’s debt crisis escalated. The dollar dropped the most in two weeks against a six-currency basket. Corn and soybeans jumped partly on concern that adverse weather will cut output in the U.S., the world’s leading exporter of the crops.

Bernanke told Congress that the central bank may buy more government debt after record stimulus, and another options would be to pledge to keep its benchmark interest rate at a record low. U.S. employers added fewer jobs in June than the lowest forecast in a Bloomberg News survey, and the unemployment rate unexpectedly climbed, government data showed last week.

“All the markets are celebrating the fact that Bernanke is already considering QE3,” a third round of so-called qualitative easing, said Michael Pento, the senior economist at Euro Pacific Capital. “This is why you see a bid into gold and all commodities.”

The Standard & Poor’s GSCI index of 24 commodities rose 1.2 percent to close at 698.04 at 4:10 p.m. New York time. Earlier, the gauge reached 702.28, the highest since June 13, as China’s economy in the second quarter expanded more than forecast by analysts. The country is the largest consumer of raw materials from metals to pork and cotton.

Twenty of the 24 prices in the index were higher. Gold futures rose to a record $1,588.90 an ounce in New York, and silver closed up 7.1 percent, the most among GSCI components. Corn capped the biggest two-day gain in eight weeks, and soybeans posted the longest rally since August.

‘Risk Back On’

“Risk is back on,” said Adam Klopfenstein, a senior strategist at Lind-Waldock, a broker in Chicago. Buying more bonds “is an inflationary proposal,” he said.

Wheat on the Chicago Board of Trade had the biggest two-day gain in 11 months. The grain competes with corn and soybean meal as an ingredient in livestock feed. The 6.3 percent gain today was the second-biggest in the GSCI gauge.

--With assistance from Jeannine Aversa in Washington and Jeff Wilson in Chicago. Editors: Patrick McKiernan, Daniel Enoch

To contact the reporter on this story: Yi Tian in New York at Ytian8@bloomberg.net; Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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