Commodities prices rally as traders gain comfort from China’s confidence in European markets

By Sandy Shore, AP
Thursday, May 27, 2010

Traders embrace a little risk, commodities prices

Commodities prices are rising after China says it’s confident that Europe’s efforts to restore financial stability will succeed.

Prices for most metals, grains and energy settled higher Thursday as traders moved money back into riskier assets. Gold, often seen as a safe harbor investment, fell.

Investors are taking comfort in China’s statements in support of Europe because it is a huge consumer of commodities and a major holder of European government debt.

Commodities also are benefiting from a weakening of the dollar against other currencies. That means commodities, which are priced in dollars, become more attractive to overseas buyers.

The improvement came after several rocky weeks on commodities markets. Investors have been favoring gold and other safe-haven assets as Europe’s stop-and-go efforts to contain a debt crisis caused worries among investors. Traders worried that a debt default in Greece or Portugal could send ripples through financial markets and derail a global economic recovery.

China said it believes Europe will take steps to improve its financial markets with international help. The statement came from the agency that manages China’s $2.5 trillion foreign reserves. It also said it had no plans to sell any European debt.

In addition, the Spanish Parliament approved a package of austerity measures designed to cut its soaring deficit.

“A little fear came off the table,” said Dave Meger, vice president of metals trading at Vision Financial Markets. “Equities, more industrial commodities and those riskier asset plays are certainly benefiting from that slightly renewed confidence in Europe.”

Prices for metals used in manufacturing all rose.

In July contracts, copper rose 7.8 cents to settle at $3.1585 a pound, up 2.5 percent. Platinum rose $22.60 to $1,552.90 an ounce. Silver rose 16.2 cents to $18.468 an ounce.

June palladium gained $15.90, or 3.6 percent, to settle at $462.25 an ounce.

Gold for August delivery lost 90 cents to settle at $1,214.40 an ounce. It reached a record high of $1,249.70 an ounce two weeks ago.

Energy prices jumped Thursday as benchmark crude for July delivery rose $3.05 to $74.55 a barrel on the New York Mercantile Exchange, its highest level since May 17.

In other Nymex contracts for June, gasoline 6.85 cents to settle at $2.0389 a gallon and heating oil rose 7.87 cents to $1.9994 a gallon.

The contracts for gasoline and heating oil both expire on Friday so much of the trading has moved to July contracts. July gasoline gained 7.06 cents to $2.0354 a gallon and July heating oil added 7.73 cents to $2.0097 a gallon.

July natural gas rose 11.5 cents to $4.294 per 1,000 cubic feet.

Grain and bean prices also benefited from investors’ growing appetite for risk.

In contracts for July delivery, wheat rose 6 cents to settle at $4.6775 a bushel; corn rose 1.75 cents to $3.7325 a bushel and soybeans gained 13.75 cents to close at $9.5175 a bushel.

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