Commodities hold steady after inflation downplayed

After more evidence suggests inflation threat low, investors curb buying of commodities

• By Sara Lepro, AP Business Writer
• On 3:22 pm EST, Thursday November 5, 2009

NEW YORK (AP) -- Commodities prices were little moved Thursday amid more evidence suggesting little threat of inflation.

Gold prices, which have soared this week, approached but didn't break through the $1,100 level. December futures finished up $2 at $1,089.30 an ounce on the New York Mercantile Exchange.

The small gains came a day after the Federal Reserve left its benchmark interest rate unchanged and downplayed the threat of inflation.

Investors have been worried that record-low interest rates could weaken the dollar and trigger inflation down the road. That fear has driven demand for gold, which is used as a hedge against inflation. Gold's gains were held in check by a statement from the Fed late Wednesday that it didn't see a threat from inflation.

The Fed's statement, which came at the end of a two-day policy meeting, was issued after most commodity markets were closed. Analysts said Thursday's lackluster trading was a delayed response to the Fed's assessment that the economy is improving, but at a slow rate.

More evidence of low inflation came Thursday after the government said labor costs fell sharply during the third quarter as employers continued to trim their work forces and cut wages. That led to a big jump in productivity, or output per hour of work. With labor costs low, and demand still weak, there is little reason for companies to raise prices on products and materials, analysts said, which should keep inflation in check for some time.

"So many of these markets aren't supported by supply and demand situations," said Darin Newsom, senior analyst at DTN, referring to commodities. "At some point, it becomes difficult to buy at these high prices."

Commodities have rallied sharply this year, driven by the falling dollar. A weaker greenback makes dollar-denominated commodities more attractive to foreign buyers, sending their prices higher.

Commodities got little direction from the dollar on Thursday. The ICE Futures U.S. dollar index, which tracks the dollar against other major currencies, wavered in a narrow range.

Among other metals, December silver rose less than a penny to $17.41 an ounce, while December platinum fell $6.40 to $1,359.70 an ounce.

December copper futures fell 3.6 cents to $2.957 a pound.

In other Nymex trading, light, sweet crude for December delivery fell 78 cents to $79.62 a barrel. Gasoline futures shed 2.5 cents to $1.9877 a gallon, while heating oil futures lost 3.26 cents to $2.0576 a gallon.

On the Chicago Board of Trade, December wheat futures slipped 8.75 cents to $5.1225 a bushel, while corn for December delivery fell 7.5 cents to $3.765 a bushel.

January soybeans fell 27 cents to $9.72 a bushel.

Buzz up!