Oil, Gold Lead Commodity Surge on Election Day Drop in Dollar

Nov. 4 (Bloomberg) — Surging prices for oil, copper and gold sent commodities rallying as a U.S. Election Day plunge in the dollar boosted the appeal of raw materials as a hedge against inflation.

The Standard & Poor’s GSCI Index of 24 commodities jumped 7.5 percent to 467.26 in New York, the biggest gain since August 1990. The Reuters/Jefferies CRB Index gained 5.3 percent, the second-biggest rally since 1956. Crude oil jumped as much as 12 percent, gold rose the most in six weeks and corn touched a three-week high.

The dollar fell the most against the euro since the 15- nation currency’s 1999 debut. U.S. stocks advanced in the biggest rally on a presidential Election Day in 24 years. Speculation that Democratic candidate, Senator Barack Obama, who leads national polls, will win against Republican John McCain helped send the dollar lower and lift commodity and equity markets.

“With the Democrats, there’s the assumption of the potential of more inflation, given their spending plans,” said William O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. “There’s general enthusiasm out there. It’s happening in all the markets, including commodities and stocks. The dollar is a huge factor today and the idea of more inflation will send commodities higher.”

The dollar fell 2.6 percent to $1.2977 per euro from $1.2643 yesterday, after losing 0.8 percent last week. The U.S. currency’s slump during five of the past six years, including a record low in July, helped propel commodities to record highs earlier this year.

Government Spending

Obama has called for a second economic stimulus package valued at $175 billion to help revive U.S. growth.

“With Obama, there’s this idea that there will be more domestic spending, which may push down the value of the dollar and be good for commodity prices,” said Michael Gross, an analyst at OptionSellers.com in Tampa, Florida.

Commodities have plunged in the second half of the year as dimming prospects for global growth increased speculation demand for raw materials will decline.

Before today, the S&P GSCI gauge was down 51 percent since touching a record on July 3. The CRB index, down about 40 percent from a record in July, plunged 25 percent in the third quarter, the most since at least 1956, when the data begins.

“We would not be surprised at all to see some sort of relief rally given the election and ideas that maybe the worst of the bad news is behind us,” said Joel Karlin, a commodity sales manager at Western Milling, a grain processor in Goshen, California. “The stunning declines seen since June has discounted some potentially bullish factors.”

Slowing Growth

Still, the potential of a cooling global expansion will cap gains for commodities, said O’Neill of Logic Advisors.

“What we have today is really a lot of enthusiasm and a relief rally,” O’Neill said. “It’s not really based on any fundamental changes to the supply or demand outlook, so it may not be sustainable.”

Gasoline and oil were the day’s biggest gainers.

Crude oil for December delivery rose $6.62, or 10 percent, to $70.53 a barrel on the New York Mercantile Exchange, the biggest one-day gain since Sept. 22. Prices, which have tumbled 52 percent since reaching a record $147.27 on July 11, are down 26 percent from a year ago.

Gold futures for December delivery rose $30.50, or 4.2 percent, to $757.30 an ounce on the Comex division of the Nymex, the biggest gain for a most-active contract since Sept. 22. Copper futures for December delivery jumped 11.8 cents, or 6.4 percent, to $1.958 a pound on the Comex.

Corn futures for December delivery rose 10 cents, or 2.5 percent to $4.13 a bushel on the Chicago Board of Trade, after earlier reaching $4.215, the highest since Oct. 14.

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