(Bloomberg) -- Gold and platinum rose to records and cotton and corn surged as a declining dollar increased demand for precious metals and farm products as alternatives to stocks and bonds.
The dollar fell as traders increased bets that the Federal Reserve will lower U.S. interest rates to avoid a recession. Gold has gained 8.3 percent this year and the dollar has fallen more than 1.9 percent against the euro, to a seven-week low. Oil and base metals such as copper also rose, lifting the UBS Bloomberg Constant Maturity Commodity Index to the highest ever.
``We're in a falling-rate environment. I think that works in gold's favor,'' Richard Urwin, London-based head of asset allocation at BlackRock Investment Management, said in an interview with Bloomberg Television. ``We're probably in an environment in which, on average, the dollar is going to depreciate. Gold is a good hedge against it.''
Gold futures for February delivery rose $5.70, or 0.6 percent, to close at $903.40 an ounce on the Comex division of the New York Mercantile Exchange. The price earlier reached $915.90, the highest ever for a most-active contract. The metal for immediate delivery rose $7.20, or 0.8 percent, to $902.60 at 1:59 p.m. in New York. It earlier reached $914.30.
Twenty-three of 29 traders, investors and analysts from Mumbai to Chicago that were surveyed by Bloomberg on Jan. 10 and Jan. 11 advised buying gold this week. Five said sell, and one was neutral.
`Extremely Bullish'
``The market is still extremely bullish,'' said James Moore, an analyst at TheBullionDesk.com in London. ``With the U.S. potentially cutting interest rates while those in Europe stay firm, the dollar looks set to add additional upside momentum.''
Corn and soybeans rose to records, and wheat rose the maximum permitted by the Chicago Board of Trade. Corn, the biggest U.S. crop, has jumped 48 percent in the past five months, and soybeans surged 54 percent. Wheat has doubled in the past year. For a second straight session, cotton rose the maximum permitted by ICE Futures U.S.
``Rising commodity prices, especially agricultural prices, have heightened inflationary concerns,'' Commerzbank AG said in a report on Jan. 11.
The dollar declined on speculation that U.S. borrowing costs will fall below those denominated in currencies held by members of the European Union.
Fed Funds Expectations
Fed funds futures contracts on the Chicago Board of Trade show 54 percent odds the Fed will cut its 4.25 percent target rate for overnight bank loans to 3.75 percent at its Jan. 30 meeting. The Fed lowered the rate 1 percentage point last year. The ECB raised rates twice in 2007 to 4 percent.
Demand for gold will be less affected by a global slowdown than silver, platinum and palladium, said Walter de Wet, head of commodity research in Johannesburg at Standard Bank Group Ltd., Africa's largest lender.
Industrial uses for gold, such as dentistry and electronics production, made up 15 percent of total demand in 2006 compared with more than 50 percent for platinum and 47 percent for silver, according to estimates by London-based research company GFMS Ltd. Jewelry accounts for almost 60 percent of gold consumption.
``The investment component of demand for all of these precious metals is dominating,'' de Wet said. ``We're likely to see an increase in all of these metals but gold is probably going to outpace.'' The gains may last until the second half of this year, he said.
StreetTracks Assets Rise
Assets in the StreetTracks Gold Trust, the world's biggest exchange-traded fund backed by gold, are up 2.2 percent this year to a record 641.81 metric tons.
``We believe the broader investor base is not yet involved in gold, which remains a very small market,'' Citigroup Inc. analyst John Hill said yesterday in a report.
Investment demand for bullion, excluding purchases for jewelry, totaled $13 billion in 2007, Hill said.
Investors may also prefer gold to stocks, analysts said. The Standard & Poor's 500 Index has fallen 3.7 percent this month.
``People are looking at precious metals as principally a safe haven while they ride out a correction in equity markets,'' Peter McGuire, managing director at Commodity Warrants Australia Ltd., said by telephone from Sydney today.
The euro traded as high as $1.4915 today. It reached a record $1.4967 on Nov. 23.
Gold has had a correlation of 0.71 against the euro-dollar exchange rate in the past three months, compared with 0.67 in the previous three months. A reading of 1 would mean the two moved in lockstep.
Inflation-Adjusted Gold
Gold still is cheaper than its inflation-adjusted price. In 1980, futures reached a record $873 an ounce, which would be the equivalent of about $2,186 last year, based on an inflation calculator on the Minneapolis Federal Reserve Web site.
Silver for immediate delivery rose 8.63 cents, or 0.5 percent, to $16.3113 an ounce after earlier rising to $16.60, the highest since November 1980.
Platinum for immediate delivery gained $8.50, or 0.5 percent, to $1,573 an ounce, after earlier touching a record $1,592. The precious metal is used in products such as jewelry and auto-emissions control equipment.
Macquarie Group Ltd. raised its forecast for the average platinum price this year by 16 percent to $1,475 an ounce. It also increased its 2009 and 2010 estimates by 15 percent.
Palladium for immediate delivery advanced $3.75, or 1 percent, to $381.75 an ounce.
Macquarie cut its 2008 palladium forecast by 12 percent to $350 and its 2009 estimate by 14 percent to $365.
Morning `Fixing' Prices
The morning platinum ``fixing'' price used by some mining companies to sell their production gained $24 to $1,589 an ounce, the highest ever. The palladium fixing rose $6 to $382, the highest since May 17, 2006.
Still, gold and other precious metals may decline in the short-term as some price gauges show the rallies have been overdone.
Hedge-fund managers and other large speculators increased bets on higher New York gold futures, to a record net 205,404 contracts on the Comex as of Jan. 8, figures from the U.S. Commodity Futures Trading Commission on Jan. 11 showed. Net long positions were up from 199,438 contracts from a week earlier.
``We are more concerned about the prospects for a sharp correction in all the precious metals rather than for near-term gains,'' UBS London-based analyst Robin Bhar said in a report. ``It is clear that there are very large speculative positions present in gold and that gold is vulnerable to a sharp correction in price at any time.''
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