Commodities reverse early losses, move higher

— Prices for commodities like oil and gold reversed early losses and moved higher Wednesday as the dollar came under more pressure.

Most commodities declined in the early going following a government report indicating that inflation remains under control.

Investors have been ratcheting up prices of commodities in recent weeks, betting that demand will pick up as the economy improves and send prices for goods and materials higher. Oil and gold are also used as hedges against inflation.

The Labor Department said Wednesday that consumer prices rose less than expected in May, a strong signal that the recession is holding down prices and that demand for goods is still sluggish.

But as the trading day wore on, investors moved back into commodities and pushed prices higher as the dollar weakened further against the euro and British pound. A weak dollar tends to send commodity prices higher.

Gold for August delivery inched up $3.80 to settle at $936 an ounce on the New York Mercantile Exchange, after earlier falling as low as $928.40. Oil prices bounced back from a slump this week to finish above $71 a barrel.

"The reality is prices are still going up and people are concerned about where those numbers are going to be a year from now," said Matt Zeman, head trader at LaSalle Futures in Chicago, referring to the government data. "People are still concerned about inflation, in spite of this number that came out today."

Zeman warned that the data gives the government less incentive to raise interest rates any time soon, which will continue to pressure the dollar.

As inflation fears escalated and interest rates on mortgages and other loans began to climb, many speculated that the Federal Reserve would be forced to raise interest rates before the end of the year.

The Fed has kept its benchmark interest rate at a record low of near zero in an effort to pull down borrowing costs. Low interest rates are one way to jump-start an economy, but they often hurt a country's currency as investors look for higher returns elsewhere.

Commodities have been on an upswing in recent months as the dollar tumbled and the outlook on the economy improved. Commodities are priced in the U.S. currency, so a weaker dollar makes them cheaper for foreign buyers.

A prolonged decline in the dollar could lead to inflation down the road, which means as long as the dollar remains weak, prices for commodities will likely rise.

Among precious metals, July silver rose 15 cents to $14.28 an ounce. Platinum fell.

Copper for September delivery rose less than a penny to $2.2695 a pound. Aluminum prices also rose.

Energy prices climbed higher on the Nymex, boosted by both a stronger dollar and a key government report that said U.S. crude inventories fell for a third straight week.

Light, sweet crude for July delivery added 56 cents to settle at $71.03 a barrel.

In other Nymex trading, gasoline for July delivery fell 3.85 cents to $2.0326 a gallon, while heating oil added 3.8 cents to settle at $1.8630.

Natural gas for July delivery jumped 12.4 cents to settle at $4.2530 per 1,000 cubic feet. Natural gas has largely underperformed the rest of the energy sector, so analysts say prices have more room to grow.

Grain prices rose on the Chicago Board of Trade.

July wheat futures gained half a cent to $5.9475 a bushel, while corn for July delivery added 3.75 cents to $4.0775 a bushel.

July soybeans rose 5 cents to $12.0625 a bushel.

Other soft commodities, like cotton, coffee and cocoa, declined.


