Commodity price rally continues to gain momentum

Oil, gold, copper, silver prices all hit highs as investor involvement wreaks commodity havoc

By Dave Hannon -- Purchasing, 2/28/2008 1:20:00 PM

Crude oil futures on the New York Mercantile Exchange hit more than $102/barrel.

Gold futures traded as high as $968/ounce and silver futures prices flirted with the $20 mark.

The UBS Bloomberg Constant Maturity Commodity Index hit its highest point ever fueled by high platinum, gold and wheat prices.

What is going on here?

As the U.S. economy continues to give cause for concern, investors are flocking to commodity markets in droves because, as Deutsche Bank's economist Adam Sieminski explains, “the returns have been better than with equities and bonds.”

"People just want to have hard assets. I think people are very concerned. The economic news coming out of the U.S. is just bad," said Bruce Dunn, vice president of trading at Auramet Trading in Fort Lee, N.J.

Copper prices hit a 21-month high on the New York Mercantile Exchange's COMEX division. Zachary Oxman, senior trader with Wisdom Financial tells Reuters News that "Copper is not trading on its own fundamentals anymore. It is trading on a general commodities bid. Commodities are the allocation and the place to be. Anything that has the tag commodity on it is running higher, because economically, it is diverging itself.”

"I really think that this is oil being viewed as...a financial instrument," said Phil Flynn, an analyst at Alaron Trading Corp. in an Associated Press report.

Purchasing magazine’s commodity price index increased by another 5% this month to a record 225.6.

And unfortunately for manufacturing buyers, the commodity investors are going to stay a while bringing their volatility and price spikes. Witness: the California Public Employees' Retirement System, the largest U.S. pension fund, said this week it may increase its commodities investments 16-fold to $7.2 billion through 2010.

“For the time being we see no reason why the base metals complex, along with the rest of the commodities sector, cannot continue to move higher," analysts with RBC Capital Markets said in a daily market overview.

Regarding gold prices, Frederic Panizzutti, precious metals analyst at MKS Finance, said in a Reuters report: "We expect several attempts to break the highs we reached in the last couple of days and then move gradually higher."

'The movements of both the dollar and oil will continue to draw investment demand into the market, limiting dips to bargain hunting opportunities, and will ultimately propel gold to $1,000/oz,' said TheBullionDesk.Com analyst James Moore.

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