Commodities jump to 5-month high as Fed’s QE3 spurs metal rally

Commodities surged to a five-month high after the Federal Reserve announced a third round of fiscal measures to bolster the U.S. economy, fueling expectations that raw-material use will increase.

The Standard & Poor’s GSCI Spot Index of 24 raw materials rose 0.6 percent to 687.2 at 3:25 p.m. in New York, after reaching 689.22, the highest since April 5. The gauge is up for the sixth straight session, the longest rally since July 19. Silver, aluminum and zinc lead the gains, and gold topped $1,770 an ounce for the first time since February.

The central bank plans to expand holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month. The benchmark interest rate probably will be held near zero “at least through mid-2015,” the Federal Open Market Committee said today. The S&P GSCI surged 92 percent from December 2008 through June 2011 as the Fed bought $2.3 trillion of debt in two rounds of so-called quantitative easing.

“That’s a commodity owner’s dream come true in terms of open-ended quantitative easing,” Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama, said in a telephone interview.

The S&P GSCI is up 5.9 percent this year through yesterday, trailing the 11 percent advance of MSCI All-Country World Index of equities. Treasuries returned 1.7 percent, a Bank of America Corp. index showed.

Gold Rally

Gold futures for December delivery jumped 2.2 percent to $1,772.10 on the Comex in New York, the biggest gain since June 29, as investors bought the metal as a hedge against inflation. Earlier, the price reached $1,775, the highest for a most-active contract since Feb. 29.

“Gold, in a way, is a pure currency, and that makes it the most interesting and the most favored when we see this type of situation” with quantitative easing, Sterling Smith, a futures specialist at Citigroup Global Markets in Chicago, said in a telephone interview.

Crude oil advanced to a four-month high after the Fed move, and also got a boost from concern that protests in the Middle East and North Africa may lead to supply disruptions.

“In the long run this should be bullish because what they are promising is the gradual increase in stimulus,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas- based energy consultant. “The $40 billion of mortgage debt each month will increase liquidity.”

Oil futures for October delivery advanced $1.30 to $98.31 a barrel on the New York Mercantile Exchange, the highest settlement since May 4. The price is up 9 percent from this time last year.

Protesters tried to storm the U.S. Embassy in Sana’a, Yemen. A Sept. 11 attack on the U.S. Consulate in Benghazi, Libya, killed the American ambassador, Chris Stevens, and three colleagues.

Bloomberg News

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