comodities jump highest in 33 years

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CRB Commodity Index Heads for Biggest Weekly Jump in 33 Years

By Millie Munshi
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Aug. 21 (Bloomberg) -- The Reuters/Jefferies CRB Index of 19 commodities soared, heading for the biggest weekly gain in 33 years, as rising energy costs and a weakening dollar revived demand for raw materials as alternative investments.

Cocoa, silver and crude oil helped send the CRB up 3 percent to 403.15 at 12:04 p.m. in New York. A settlement tomorrow at that level would mark a 5.5 percent gain for the week, the most since July 1975. The dollar dropped the most in six weeks against the euro today and oil jumped as much as 5.6 percent.

The rebound in the CRB and a resumption of the dollar's decline may stall a rout in commodities that that sent the index down 15 percent from a record on July 3. Raw materials priced mostly in dollars often move in the opposite direction of the U.S. currency.

``The bounce in the dollar had caused people to sell commodities aggressively, and a lot of that selling became overdone,'' said Chip Hanlon, who helps manage $1.5 billion at Delta Global Advisors in Huntington Beach, California. ``This move may tell us that those downtrends are over. Commodities could continue to rally from here.''

Every commodity on the CRB except hog futures moved higher today, with cocoa jumping 6.6 percent, silver rallying 5.3 percent and crude oil up 5 percent. Oil and gold both headed for their biggest one-day advances since June.

Chinese Demand

Commodities also gained today on speculation demand will increase from China as the country resumes work at factories and infrastructure projects that were shut or slowed during the Olympics, which end Aug. 24.

``China's demand is very important to the commodity markets,'' Hanlon said. ``Now that they're ready to start bringing back factories that had been idled, I wouldn't be surprised to see demand start to pick up again there. Their long-term outlook for growth and development hasn't changed.''

The CRB has more than doubled since 2001 as demand surged in China, the world's fastest-growing major economy. Mining and oil companies, farmers and other commodity producers have struggled to keep with rising consumption as harsh weather and labor unrest disrupted supplies.

``Until either a lot of supply comes on stream or the economy collapses, the bull market will continue,'' said investor Jim Rogers, who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,100 an ounce.

The UBS-Bloomberg Constant Maturity Commodity Index rose 3.6 percent to 1,503.407. A settlement at that price would mark a 6.5 percent gain this week, the most since the data starts in 1997.

To contact the reporter on this story: Millie Munshi in New York at [email protected]
Last Updated: August 21, 2008 12:07 EDT