Optimism about the economy showed through in the commodities markets recently as investors sent prices for gold, oil and grains higher on the belief that demand for basic materials will soon rebound. I think they're right, although no one can predict the timing of any market.
There is "a general feeling that maybe we're starting to stabilize here in terms of the economy," said Stephen Platt, an analyst with Archer Financial Services in Chicago. "There is some hope that the demand might come back."
Surprisingly positive data on the jobs market renewed hopes that the economy is recovering. The Labor Department said Thursday that the number of unemployed workers continuing to receive benefits unexpectedly dropped last week for the first time in 20 weeks. New jobless claims also declined, falling to 621,000 from 625,000, nearly matching analysts' estimates.
Unemployment has been one of the most closely watched gauges of the economy's health throughout the recession. Rising job losses affect vast areas of the economy, including consumer spending, retail sales and the housing market. The report came a day ahead of the government's crucial tally of monthly job losses.
A slightly weaker dollar also helped spur buying of commodities, particularly gold and oil. A weaker dollar makes both gold and oil attractive investments. By buying gold, investors insulate themselves from the risks of inflation, while oil becomes cheaper for foreign buyers when the dollar falls.
On Thursday, the dollar traded mostly lower against other major currencies as central banks in Europe made the decision to keep their benchmark interest rates at historically low levels, signaling a cautious stance on the economy.
Low interest rates are a tool governments often use to revitalize the economy by lowering borrowing costs, but they can also undermine a country's currency. The Federal Reserve also has kept its benchmark interest rate very low — near zero — as it works to boost the U.S. economy, which has put pressure on the dollar.
The dollar has declined steadily since early March as the outlook on the economy improves. This leads investors to look for more traditionally risky assets like stocks in which to park their money.
Gold for August delivery rose $16.70 to $982.30 an ounce on the New York Mercantile Exchange, erasing nearly all of the previous day's 2 percent loss.
Other metals also rose. July silver jumped 58.5 cents to $15.8950 an ounce, while July copper futures added 8.9 cents to $2.3010 a pound.
Thursday, June 4, 2009