Commodities Rally Gets New Legs From Fed Stimulus Hopes

--Grains soar on strong demand outlook, crude oil futures gain on signs of improved demand

--Moody's puts US Aaa rating on review as debt ceiling talks drag on, boosting gold and pressuring oil in after-hours trade

NEW YORK (Dow Jones)--Commodities prices soared Wednesday as Federal Reserve Chairman Ben Bernanke's hints of more economic stimulus kicked individual rallies in gold, grains and crude oil into a higher gear.

Futures prices vaulted higher as Bernanke testified before Congress that the central bank is prepared to inject additional monetary stimulus should economic growth in the U.S. stall. The remarks pressured the dollar lower, giving dollar-denominated commodity futures a boost by making them cheaper to buy using other currencies.

But for most commodities, Bernanke was simply adding fuel to long-smoldering fires.

Gold prices, which soared to a record $1,588.90 a troy ounce, marched higher for the seventh consecutive day to a settlement record of $1,585.50. Investors have turned to gold as a safe bet amid escalating concerns about Europe's sovereign-debt problems.

Moody's Investors Service fortified these fears by downgrading Ireland's credit rating to junk. Market attention is now focused on Italy amid concerns the third-largest economy in the euro bloc will join peripheral members Greece, Ireland and Portugal in seeking financial aid to avoid default.

"Gold specifically is going to benefit from the downgrades in Ireland and people seeing Italian bond yields starting to soar," said Matt Zeman, head of trading at Kingsview Financial. "Given the uncertain debt outlook not only abroad but in the U.S., people are going to gold because it's a store of value."

Physical gold held in exchange-traded funds, a proxy for investment demand for the safe-haven asset, has jumped to 2,139 metric tons, the highest levels since the start of the year, according to Barclays Capital.

Crude oil began to reverse earlier losses following Bernanke's comments. But prices pushed into positive territory only after a draw in weekly U.S. crude inventory data suggested improved demand from the world's biggest oil consumer. Light, sweet crude for August delivery gained 62 cents, or 0.6%, to settle at $98.05 a barrel.

Grain futures jumped early Wednesday, as Bernanke's comments amplified a market already rising on a heat wave threatening Midwest crops and a report Tuesday from the U.S. Department of Agriculture predicting lower grain inventories this August than many analysts had expected.

Wheat for September delivery gained 6.3% to settle at $7.14 1/2 a bushel, while corn rallied 4.3% to settle at $7.26 3/4 a bushel.

The jump in grain futures can be characterized as a twin rally on the weather and Bernanke, said Dan Basse, president at AgResource Co., a Chicago agricultural advisory and research firm.

Moody's again roiled traders in after-market hours when the credit ratings agency placed U.S. government debt on review for a possible downgrade. The credit ratings agency cited the "rising possibility" that a deal to raise the debt ceiling may not be reached in time to avoid a default. Lawmakers have been at an impasse on the issue despite the Aug. 2 deadline set by the treasury.

Commodities had a muted reaction to the news, which came just minutes before electronic trading closed for the day. Gold futures, which had retreated from record settlement prices after floor trading closed, gained around $4 in electronic trade following the announcement. Meanwhile, crude oil slipped around 40 cents to $97.50 a barrel.

--Andrew J. Johnson contributed to this article.

Copyright © 2011 Dow Jones Newswires

Authors: Commodities - Yahoo! News Search Results

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