Commodities come roaring back
In reversal of recent trend, prices of oil, gold and corn show strong gains as fears of more weakness in the U.S. economy send dollar sinking.
NEW YORK (CNNMoney.com) -- Oil up nearly $6. Gold higher for third time this week. A bushel of corn trading a buck more than it did a week ago.
Commodity futures surged on Thursday, as the dollar switched into reverse from its weeks-long rise.
The dollar tumbled against the euro, pound and yen on fears of further weakness in U.S. financial institutions. That sent investors flocking to commodities, which are often used as hedges against inflation.
"The falling dollar seems to be the primary catalyst for the fall in commodities," said David Hightower, editor of the commodities analysis newsletter The Hightower Report. "There are inflation buyers who are scared by paper problems at Lehman, Fannie and Freddie, so they're using commodities as a flight-to-quality investment."
The headliner was crude oil, which gained more than $5 to bounce back to $120 - a level it hasn't seen in weeks.
But natural gas futures also bumped higher, rising about 2% even as a weekly supply report from the U.S. Energy Information Administration released Thursday indicated that stockpiles of the commodity grew last week.
"The bull market is not gone for energy," said Hightower. "Demand is still strong, especially after prices fell to $111."
Metals prices also soared. Gold prices, which rose in only one session from July 15 through last Friday, rose for the third day this week.
The shiny commodity gained $22.70 to settle at $833 an ounce. Silver also rose 5% Thursday in New York trading, while platinum gained 6% and copper added 4%.
On the Chicago Board of Trade, corn prices gained 25 cents to $6.20 a bushel. Corn roared back after falling about $3 since mid-July to just over $5 a bushel last week.
Futures of soybeans and oats rose 3%, while wheat and ethanol both added about 4%. Cocoa added 7% Thursday.
It may be awhile before the price changes hit consumers. For instance, despite the recent slide in cocoa, Hershey (HSY, Fortune 500) raised prices by 11% Friday, citing a spike in prices earlier in the year for ingredients such as cocoa, corn sweeteners, sugar and peanuts. The candy maker also said it expects commodity prices to increase in 2009.
Commodities had tumbled in the past month as the dollar rallied all the way to a 6-month high against the euro set last week. But the greenback's comeback was mostly due to a weakening of European economies - not strengthening of the U.S. economy. As a result, signs of further weakness at home sent the dollar down by around 1% against most major currencies Thursday.
If the dollar returns to a slump, commodity prices may soar, especially as speculators experience prices a several-month lows.
"Wall Street analysts keep saying the commodity bubble has burst, but the bubble isn't over because demand is still strong," Hightower said. "Demand is going to get even better when we have a big drop in prices. 
