As U.S. stocks extended gains Thursday with the Dow Jones industrial average surging some 300 points, commodities rallied, too, with gold rising 1.5 percent.
"We're seeing a disconnect from the old relationship of equities down, gold up," said Rich Ilczyscyn, senior strategist at MF Global, adding funds are allocating money to the gold trade because the precious metal didn't break the trendline of $1,600 an ounce. "If the $1600 level holds, its relatively low-risk on the big scheme of things to start getting long."
Two weeks ago, the Commodity Futures Trading Commission said funds increased their positions in 18 commodities by 12 percent, Ilczyscyn said. Most of the money went into energy and grains, though. Ilczyscyn thinks funds are now rotating into the metals because key levels were not breached.
If the S&P 500 index closes above its 200-day moving average of 1,275, Ilczyscyn thinks some people may come off the sidelines and start investing again. In turn, some may invest in commodities, sending the group even higher.
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CNBC.com with wires.