up, up & away

UPDATE 3-COMMODITIES-Gold, copper surge to new highs

By Clare Black
LONDON, May 10 (Reuters) - Investors continued their love affair with raw materials on Wednesday, as gold punched through $700 an ounce for the first time since 1980 and copper hit a new all-time high above $8,100 a tonne.
Aluminium hit a new 18-year peak, oil prices moved up towards $71 a barrel and zinc notched up a new record high.
Gold peaked at $704.50 an ounce and finished European trading just below there at $701.30, while platinum surged to a record $1,265 and closed at $1,250.
While investors like gold for its safe-haven properties, commodities like copper and oil have risen as producers saddled with ageing infrastructure struggle to keep up with the insatiable appetite of fast-growing economies like China.
U.S. crude oil futures shrugged off a higher-than-expected rise in gasoline inventories after news of refinery closures attracted more buying.
Copper , used in wiring, plumbing and coins, peaked at $8,110 a tonne and has rallied around 85 percent since the start of the year. It finished open outcry trade on the London Metal Exchange with gains of 3.2 percent at $8,070 a tonne.
"The next stage will be to establish the price above $8,000 and I see no reason why it should not be able to do that," Sempra Metals economist John Kemp said.
The latest surge has seen copper prices rise six-fold in five years and gold nearly triple.
Money is coming from investors keen to devote part of their portfolio to commodities which are outperforming more traditional avenues of investment like equities and bonds.
Renewed dollar weakness has also steered money back in.
Inflows to commodity indexes, a popular entrance portal into the asset class, are on course to top $3.5 billion this year. By March 2006, funds were estimated to have poured in a total of around $80 billion. [nL0833927]
"The demand is high and the demand is increasing and I think it's a result of proper education," said Jeffery Robbins, managing director at Banque AIG, part of the world's largest insurer American International Group Inc (AIG.N: Quote, Profile, Research).
"Investors, especially the institutional investors and the pension market, are understanding that commodities futures as an asset class is a legitimate asset class."
Citigroup Inc said the monthly average value of long-term and short-term speculative positions held in U.S. commodity futures rose sharply last month and was near the all-time record of $128 billion last October. [nSYD238676]
Massive price volatility is causing concern, especially for consumers, but funds are still eager to jump in when they can.
"We are looking for a horrid, horrid movement which could represent a good buying opportunity," a fund manager said.
"Just like the crash in 1987 in U.S. large cap equities, 2006 could see parallels within industrial metals."
"Talk is cheap, but I can see prices 50 percent lower," he said, adding that he expected markets to climb again before the end of the decade.
TIGHT SUPPLY, STRONG DEMAND
Global copper stocks are at critically low levels, with inventories held in the London Metal Exchange covering only around 2-1/2 days' worth of consumption.
Manufacturers are struggling to cope with the rise in prices, although so far they seem to be passing it straight on to consumers. [nHKG233561].
On the other hand, miners are smiling [nL10122218] and their share prices are buoyant, with one British stockbroker estimating earnings forecasts could rise by about 30 percent on average this year.
"Crucially though, whilst most analysts still assume significant declines in metals prices in 2007 as tightness eases, if this proves not to be the case and current spot levels persisted, our large cap 2007 forecasts would be upgraded by about 50% on average," Numis Securities analyst John Meyer said