Fear has been very, very good for commodities.
As investors bail out of stocks and other types of "paper" assets, they're pouring into tangible investments—namely oil, gold and other metals.
“It’s all fear and anxiety driven right now,” says Matt Zeman, head trader at LaSalle Futures Group in Chicago. “People are very, very nervous even just about having their money sitting in their local bank account People just want to put their money into some hard tangible assets they can put their hands on.”
Both individuals and institutional investors are continuing to pile into hard assets—as well as the soft commodities, such as cotton and coca—as a safe haven, Zeman said.
And while the rebound in commodities may be short-lived, pros think it will last as long as the stock market is so unsettled.
After gold above spiked more $70 Wednesday - the largest single-day dollar gain in decades - the precious metal roared as high as $926 on Thursday trading before settling at $897, up by $46.50 per troy ounce for the day, or 5.5%, on December delivery. This represents a gain of roughly 20% in the last five days.
Thursday also saw price gains for a range of metals including silver and copper although these are more than gold's gain.
“Gold is by far the biggest beneficiary of any sort of flight to quality or flight from risk,” said Hussein Allidina, a commodities analyst with Morgan Stanley.
What's behind the continued rally of gold and silver. Watch video at left.
Global central bankers managed to tame the stampede to hard assets Thursday by their overnight injection of $180 billion liquidity into the banking system.
But even this massive injection was expected to provide only temporary relief to the fear stalking equities, especially of financials.
“[The price of gold] is all a function of what’s happening in markets not related to gold – it’s confidence in the dollar, its confidence in paper assets, if you can tell me that people are going to continue to lose confidence, that there will be more bank failures, then gold will go to $1,000,” said Allidina.
He declined to say how quickly this could happen noting that “this rally you are seeing is not because of supply and demand fundamentals, this rally is because of fear.”
Zeman said he “would not be surprised” if gold crossed that threshold within 60-90 days, although he expected some violatility with some profit taking along the way.
Both said crude oil prices had far less upside potential in the next few weeks.
A CNBC report from the NYMEX trading floor. See video at left.
Crude oil fundamentals – including a seasonal dip in crude and refined product demand - are “relatively weak” for the next few weeks, said Allidina, who expected prices to be “in the doldrums” until demand for heating oil picks up in November.
Zamen said he expected further government action to try to restore confidence in financial markets but he doubted it would successful in the near-term.
“I don’t see a whole lot that could undermine this [rally], nothing is going to change the fundamentals of the equities market, or housing or the credit crisis over night,” said Zamen. “So I’d be hard-pressed to come up with anything that could undermine a good solid run in precious metals right now.”