The prices of raw materials surged Tuesday as investors bet the beaten-down global economy would force central banks to take fresh steps to support growth.
With many commodities markets closed on Wednesday for the U.S. Independence Day holiday, traders Tuesday took the opportunity to lock in bullish bets on copper, crude oil and precious metals in case the central bankers make moves that would stoke demand.
The European Central Bank Thursday is widely expected to announce a cut to its benchmark interest rate—essentially adding funds to the economy—in an effort to prop up Europe's financial system.[It already happened—see #msg-77219536.] Worries about the region's banking crisis already had eased after European leaders agreed last week to increase support for the Continent's troubled banks.
"Investors are stepping into these [commodities] markets following the European agreement and some of the talk that you will see an injection of liquidity," said Stephen Platt, a futures strategist with Archer Financial Services. "Markets are pretty explosive here."
Traders and analysts say central-bank moves to spur growth will whet the global appetite for raw materials.
The Dow Jones-UBS Commodity Index, which tracks the performance of 20 exchange-traded commodities, settled at 139.315, up 2.7% on the day and the highest settlement since May 1.
Commodities prices had slumped in May and early June, falling 11% on worries that Europe's debt crisis would weaken already shaky global growth.
Meanwhile, news reports from China, seen as the key driver for raw-materials demand, suggested that the country's central bank might make it easier for companies to get loans. Tuesday's front-page commentary in the state-run China Securities Journal said it was time to lower the amount of money commercial banks were required to hold in reserve. Such a move would free up funds for loans to businesses and consumers.
Beijing has cut the amount of money banks must hold three times since November in a bid to spur growth.
Copper, viewed as an industrial bellwether because of its uses across industries, rose to the highest level in seven weeks. Copper for September delivery on the Comex division of the New York Mercantile Exchange rose 2.1% to settle at $3.54 a pound.
Gold benefited from the view that central banks would increase liquidity in the financial system. Some investors use gold as a hedge against the potential inflation such stimulus measures can bring. Gold for August delivery rose 1.5% to $1,621.80 a troy ounce on Comex, the highest settlement in two weeks.
Crude oil surged to a one-month high, taking cues from another round of headlines surrounding Iran's nuclear program. The European Union's oil embargo on the country took effect Sunday and The markets balanced news from both sides of the controversy. Iranian lawmakers threatened to close the Persian Gulf's Strait of Hormuz, a key oil passageway, to ships from sanctioning nations. Meanwhile, a New York Times report said that the U.S. was bolstering its forces in the area to safeguard the strait. Oil for August delivery rose 4.7% to $87.66 a barrel on Nymex.
"This Iranian situation just seems to be getting bigger and bigger," said Carl Larry, president of research firm Oil Outlooks and Opinions.
Agricultural staples soybeans and corn jumped on Tuesday on worries that sweltering weather in the U.S. would damage crops. July soybeans rose 2.6% to $15.72¼ a bushel on CBOT, the highest price since July 2008. July corn gained 3.8% to $7.18¾ a bushel, the highest price since September.
Similar fears for cotton pushed prices for the fiber up 0.8% to 72.60 cents a pound for the December contract on the ICE Futures U.S. exchange.
"We've seen them come back in a pretty aggressive way," he said.‹
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