"Commodities Cap Biggest Monthly Gain Since 1974 on Dollar Drop
May 29 (Bloomberg) -- Commodities jumped, capping the biggest monthly rally in 34 years, as the slumping dollar bolstered demand for energy, metals and crops as a hedge against inflation.
In May, the Reuters/Jefferies CRB Index of 19 raw materials gained 14 percent, the most since July 1974. The dollar touched the lowest level in five months against a basket of six major currencies.
Signs of a recovery in the global economy have spurred demand for fuel, industrial metals and crops. Crude oil posted the biggest monthly gain in a decade. Gasoline soared 31 percent in May. Gold, silver and copper surged, while corn and soybeans reached the highest in about seven months.
“The belief that the world economy is not going down into a black hole anymore has brought a lot of investors back in,” said Peter Sorrentino, who helps manage $13.8 billion at Huntington Asset Management in Cincinnati. “You also have the threat of inflation, and that means that people just want to have hard assets.”
The CRB index gained 1.3 percent to 253.05 today, extending a rally to the highest since November. The dollar fell for the third straight month against the currency basket, partly on demand for assets with higher returns.
Investors are seeking a “safe haven from a weaker dollar,” said Stephen Platt, a commodity analyst at Archer Financial Services Inc. in Chicago. “This rally is sustainable, given prospects of the dollar, which is expected to weaken along with other industrialized countries’ currencies.”
The world economy is showing signs of a rebound from the worst recession since the Great Depression after central banks and governments cut interest rates close to zero and spent more than $13 trillion on stimulus programs and rescue measures.
A financial crisis, which started with the collapse of the U.S. property market in 2007, sent the global economy into a recession. Banks and other financial institutions had more than $1.46 trillion of writedowns and credit losses.
Government reports from Japan to India to the U.S. bolstered economic optimism today.
Confidence among U.S. consumers rose this month to the highest level since September, reinforcing signs that the recession is abating. Japan’s industrial production in April jumped the most in 56 years in April, and India’s economy expanded in the first quarter by more than economists forecast.
Still, U.S. business activity contracted at a faster pace than forecast in May as orders dropped. Unemployment, already at a 25-year high, is forecast to keep climbing and home foreclosures are at a record. Bankruptcy looms at General Motors Corp., the biggest U.S. carmaker.
“I don’t know where all the optimism for the economy is coming from,” said Gijsbert Groenewegen, a partner at Gold Arrow Capital Management in New York. “When you look at housing and autos, all of those things are still weak. There is a disconnect between what the reality for the economy is and what people think.”( NB DON )
Crude-oil futures for July delivery rose $1.23, or 1.9 percent, to $66.31 a barrel on the New York Mercantile Exchange. This month, the price jumped 30 percent, the most since March 1999.
Gasoline futures for June delivery rose 2.05 cents, or 1.1 percent, to $1.931 a gallon. The monthly gain was the biggest since March 2006.
Gold futures topped $980 an ounce today, and silver had the biggest monthly increase in 22 years.
Cotton surged 5 percent today, and copper climbed for the fifth straight month.
The dollar dropped 4.9 percent this month against the currency basket.