Search:

NEW YORK—After a week of steep losses in rice, wheat, gold and silver, investors are wondering whether the commodities price bubble may be about to burst.

Prices rebounded some on Friday as the week’s losses triggered bargain hunting. But the overall direction—amid signs of easing credit market turmoil and a stronger dollar—has been renewed optimism about economic prospects, which has diminished the appeal of commodities as safe-haven investments.

The flight from commodities has been most pronounced in gold, which has lost virtually all its gains from this year and is 20 percent off its all-time trading high of $1,038.60 an ounce, reached March 17.

Moreover, investors are funneling money out of gold exchange-traded funds, or ETFs, which sell shares backed by gold bullion. The biggest gold ETF in the U.S., streetTRACKS Gold Shares, has shed 83 tons of gold since March, roughly half the amount it acquired during the metal’s run-up beginning late last year.

“That’s an indication that the credit market tightness is being alleviated,” said Tom Pawlicki, commodities analyst with MF Global Research in Chicago. “At this point I think we’re probably in the early stages of a weakening commodities market, a strengthening dollar and more risk appetite.”

Further help for the credit markets came Friday when the Federal Reserve announced that it would expand efforts to deal with the credit crisis, in coordination with European central banks. The Fed said it was boosting the amount of emergency reserves it supplies to U.S. banks to $150 billion in May, from the $100 billion it supplied in April.

Grain futures also sank this week as speculators who drove prices to record levels earlier this year were pulling out of the market. Wheat futures fell below $8 a bushel for the first time in four months, rice fell nearly $4 from a record and soybeans also moved lower.

“That’s a symptom of large funds pulling out. We have noticed that,” said Elaine Kub, grains analyst with DTN in Omaha.

Still, analysts caution against declaring an end to the commodities boom, especially for food. Relentless demand from developing countries like India and China, poor crop yields and high energy costs could further drive up the price of rice, corn, wheat and soybeans.

“I wouldn’t say it’s the end of the bubble,” Kub said. “We’re talking about widespread global demand (for food). Just because the dollar is higher doesn’t necessarily stop that growth.”

This week’s losses have been largely tied to the dollar, which muscled higher against the euro after the Federal Reserve moved less aggressively to cut interest rates Wednesday. Some investors took that as a sign of a pause in the central bank’s rate-cutting cycle, which could further boost the dollar and slow demand for the hard assets viewed as hedges against inflation.

In bargain buying Friday, gold for June delivery rose $7.10 to settle at $858 an ounce on the New York Mercantile Exchange, after losing more than $14 on Thursday.

“Given the weakness in crude oil and the euro, gold looks headed for further losses despite good physical demand starting to come in,” John Reade, analyst with UBS in London, said in a note.

Other precious metals also traded higher. July silver added 26 cents to settle at $16.465 an ounce on the Nymex, while July copper rose 12.60 cents to settle at $3.8205 a pound.

In energy markets, crude oil spiked more than $3 a barrel after Turkey carried out airstrikes on Kurdish rebel bases in Iraq, raising concerns about supply disruptions. Light, sweet crude for June delivery rose $3.80 to settle at $116.32 a barrel on the New York Mercantile Exchange.