Oil and gold at historical highs as dollar slides

PUBLISHED : Tuesday, 30 October, 2007, 12:00am
UPDATED : Tuesday, 30 October, 2007, 12:00am

Commodity prices rose sharply yesterday, with fears of Middle East instability and the threat of inflation pushing oil and gold to historical highs as the US dollar continued to weaken.

The US dollar plumbed new depths against the euro at around US$1.44 on expectations the US Federal Reserve will pare another 25 basis points off interest rates this week.

The weak US currency meant that many of the world's currencies rose to historical highs against it. The Australian dollar rose to a 23-year high of more than 92 US cents, while the Canadian dollar hit a 47-year high and is now worth more than the greenback.

Crude oil for December delivery rose as much as US$1.34 to US$93.20 in electronic trading in New York. Gold rose to a 28-year high of US$792.95 an ounce as the falling dollar and higher oil prices sent investors looking for protection from inflationary pressures.

The weak US dollar helped boost commodity prices across the board, as most are priced in US dollars.

Higher commodity prices are of particular concern on the mainland, which relies heavily on imported energy, metals and food.

The rising prices will give central planners an even more difficult time controlling inflation.

'China is importing around 3 million barrels of oil a day. At these prices, it's a hit on the pocket book, but it's not like China has a balance of payments problem it has to worry about,' said John Vautrain, an analyst at the energy consultancy Purvin & Gertz.

Soy oil climbed to a 32-year high because investors hope high fossil fuel prices will shift demand towards organic alternatives. The rally in oil and the weaker dollar also boosted food commodities such as wheat.

'Agricultural commodities and energy seem to be outperforming the more industrial commodities such as metals because there are concerns there could be slowing corporate and manufacturing growth, while for energy and agricultural markets there are supply side issues that are helping to boost the prices,' said Michael Coleman, of commodity fund manager Aisling Analytics.

Some of the strength in commodity prices was due to money shifting from one market to another. The weakening US economy and credit worries had prompted fund managers to move money out of the country's massive corporate debt markets and into relatively small commodities, traders said.

'This has had a disproportionate effect, as a small percentage for the commercial paper market is actually a huge amount of money flooding into commodities,' Mr Coleman said.