NEW YORK – Gold and other commodities surged Monday, buoyed by a weakening dollar and a rally on Wall Street that lifted the Dow Jones industrials nearly 400 points.
The dollar fell against the euro and the British pound after the government unveiled a plan to rescue Citigroup Inc. The bailout plan could lead to the Treasury's issuing more bonds to fund the plan, and that in turn could feed inflation, which undermines the dollar. Investors often use commodities as a hedge against inflation, so a falling dollar tends to lift prices.
"The government bailout is certainly going to weaken the dollar," said Rob Kurzatkowski futures analyst with OptionsXpress.
At the same time, news of the Citigroup rescue sent stocks soaring, which also gave commodities a boost. Commodities have largely followed the movement of the stock market in recent weeks, as investors increasingly use Wall Street as a barometer of economic health. Monday's advance, which followed a nearly 500-point climb in the Dow on Friday, came as investors bet that the worst of the financial industry's problems might be over.
The government said late Sunday it will take a $20 billion stake in Citigroup and guarantee more than $300 billion in risky assets. The moves were seen as an effort to prevent irreparable damage to the financial sector and beyond.
Gold for December delivery jumped $27.70 to $819.50 an ounce on the New York Mercantile Exchange, after rising as high as $830.10 earlier in the session.
Other precious metals prices also rose. March silver gained 87.3 cents to $10.378 an ounce, while March copper futures rose 9.25 cents to $1.6715 a pound.
Energy prices advanced on the Nymex, also reflecting an improvement in investor sentiment due to the Citigroup bailout.
Light, sweet crude for January delivery rose $4.57 to close at $54.50 a barrel.
In other Nymex trading, gasoline futures rose 7.8 cents to settle at $1.1425 a gallon, while heating oil rose 8.48 cents to settle at $1.784 a gallon.
Grain prices also rose on the Chicago Board of Trade.
March wheat futures gained 38.75 cents to $5.5675 a bushel, while March corn rose 16.75 cents to $3.71 a bushel.
January soybeans rose 44 cents to $8.84 a bushel, after rising as high as $8.995 a bushel earlier in the session.