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Commodities rocket as dollar sinks after Fed moves

March 19, 2009 | 11:37 am

Nobody's happier with the Federal Reserve today than commodity bulls.

Raw materials prices have surged in the wake of the central bank’s latest plans to pump massive new sums into the financial system, via purchases of mortgage-backed bonds and longer-term Treasury securities.

The commodity market smells higher inflation down the road. So does the currency market, where the dollar is getting pounded again today: The euro has surged to $1.366, up from $1.342 on Wednesday and $1.297 on Monday.

GoldbarsCommodities including oil also may be attracting buyers who figure the Fed’s attempts to drive down long-term interest rates will do the trick in terms of spurring an economic recovery, which would mean higher demand for raw materials. And with a weaker dollar, commodities priced in the U.S. currency get cheaper for foreign buyers.

Crude oil traded above $51 a barrel for the first time since late November. Near-term futures were at $50.87 at about 11:30 a.m. PDT, up from $48.14 a day earlier. The recent low was $34 in mid-February.

In the oil market, "It looks like demand has stabilized and the economy has reached the bottom. All of this has traders wanting to bid the price up," Christopher Edmonds, managing principal of FIG Partners Energy Research & Capital Group in Atlanta, told Bloomberg News.

The Reuters/Jefferies CRB index of 19 major commodities was up 4.9% to a six-week high of 224.38. Every commodity in the index was higher except for nickel.

Gold, which had rocketed in late electronic trading on Wednesday after the Fed’s decision, built on those gains. The metal ended in futures trading today at $958.30 an ounce, up $69.60 from Wednesday’s close and about $20 higher than the electronic-trading quote late Wednesday.

"This Fed announcement yesterday has got everything on fire," Tomm Pfitzenmaier, a partner at Summit Commodity Brokerage in Des Moines, told Bloomberg. "The natural progression of that is a weaker dollar, which is bullish for commodities."

-- Tom Petruno

Photo : Kim Jae-Hwan / AFP/Getty Images