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Gold hits new high, dollar sinks as Bernanke hints at more stimulus

Commodity markets are flying Wednesday as investors and traders exhibit a Pavlovian-like response to the idea of more Federal Reserve stimulus for the economy.

Gold rose to a new record high, topping $1,585 an ounce, and silver also rocketed. Of the 19 commodities in the ThomsonReuters/Jefferies CRB index, just copper and sugar were lower.

Fed Chairman Ben S. Bernanke, testifying before Congress, made clear that the central bank could -- not would, but could -- provide more stimulus for the economy if the outlook worsened.

Benn That was good enough for investors and traders who figure raw materials could be big beneficiaries if the Fed decides to try to pump more money into the financial system.

For one thing, that should weaken the dollar, the archrival of hard assets. Bernanke’s comments drove the DXY index of the buck’s value against six other major currencies down 0.8%, its biggest one-day decline since June 17. The dollar fell to a four-month low of 78.98 yen from 79.24 on Tuesday.

What’s more, commodity bulls see raw materials benefiting in two ways if the Fed eases credit further: Some of that new money probably would flow directly into commodities as speculators take advantage of cheaper credit; and if the assumption is that more stimulus would stoke economic growth, commodities would be more appealing as investments and as hedges against rising inflation.

Gold, the classic hedge, jumped $23.30, or 1.5%, to close at a record $1,585.20 an ounce in New York. It’s now up 11.5% this year.

Silver, which has been lagging gold in recent weeks, surged $2.52, or 7.1%, to $38.15 an ounce, its highest close since May 31.

Wheat, cotton, cocoa and corn all were up more than 3% for the day. U.S. crude oil rose as high as $99.21 a barrel but fell back to close up 62 cents at $98.05.

The CRB index was up 1.4% to a one-month high of 349.17 at about 12:30 p.m. PDT.

Commodities also were helped by fresh optimism about Chinese economic growth.

The stock market also was higher, but its gains were fading. The Dow Jones industrial average was up 54 points, or 0.4%, to 12,501 with 30 minutes to go in the session, after being up as much as 164 points earlier.

-- Tom Petruno

Photo: Federal Reserve Chairman Ben S. Bernanke. Credit: Chip Somodevilla / Getty Images

 
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