Inflation risks are leaving the price rapidly

Tag : base metals
 A sudden snap back in crude oil prices on datashowing higher-than-expected demand for U.S. gasoline helped basemetals like copper and nickel and crops such as soybeans and cornto rebound Wednesday.
But other key commodities like gold -- an important inflationindicator -- as well as wheat, closed down, reflecting thecautionary stance adopted by some investors since the start of theweek.
U.S. gold for delivery in December, the most actively tradedfutures month, settled down $14.10, or 1.5 percent, at $912.30 anounce on the COMEX metals division of the New York MercantileExchange (NYMEX).
The contract had come close to breaking below the $900 an ouncelevel critical to the confidence of market bulls when it came downto $902.70 earlier in the session.
"The reality for the gold market is that inflation risks areleaving the price rapidly, courtesy of the weaker growth outlookand the fact that central banks are still trying to sound ashawkish as the underlying growth outlook allows them to be,"JPMorgan, the No. 3 U.S. bank, said in an outlook on preciousmetals.
COMEX gold futures had hit a record high above $1,000 an ounce inMarch, even before crude oil on NYMEX scaled to its own peak above$147 a barrel earlier this month.
But in recent weeks almost all commodities, led by oil, have givenback substantial gains built since the start of the year asinvestors feared prices -- especially of crude oil, which haddoubled from a year ago -- had overshot levels that demand couldjustify.
As with gold, prices of wheat were weighed down Wednesday byconcerns over demand.
Wheat for September delivery on the Chicago Board of Trade (CBOT)closed down 4-1/4 cents at $7.87-3/4 a bushel.
On the crude oil front, prices rose by more than $4 a barrel afteran unexpected drop in weekly gasoline inventories released by the U.S. Energy (nasdaq: USEG - news - people ) Information Administration.
Oil markets had been bracing for a 200,000-barrel build in gasolinestocks from a week ago but the EIA instead said inventories droppedby 3.5 million barrels.
The bullish data helped the benchmark U.S. light crude contract onNYMEX settle up $4.58 at $126.77 a barrel after falling to $120.42Tuesday, its lowest level since May 6. London Brent crude ended up$4.39 at $127.10.
The rebound in oil prices -- and a weaker dollar -- saw copperfutures on both COMEX and the London Metal Exchange (LME) rise to asharply higher close.
COMEX copper for September delivery ended 5.55 cents firmer at$3.6460 a lb. LME copper for delivery in three months settled up$85 at $8,030 a tonne.
Also on the positive side, prices of CBOT corn slated for nextyear's harvest rallied after the government decided not to releaseland from a conservation program to grow crops, citing amplesupplies for food, feed and fuel.
CBOT corn for delivery in December 2009, the first contract tofully reflect prices for next year's crop, closed up 19-1/2 cents,or 3.07 percent, at $6.55 a bushel.
Soybeans rode the coattails of corn to close up 9-3/4 cents at$13.94 a bushel for the August contract on the CBOT. (Editing byMatthew Lewis) Copyright 2008 Reuters, Click for Restriction
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