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commodities to extend rally even after fed exit: chart of day

june 5 (bloomberg) -- commodities will resume a rally after their worst month in a year as the federal reserve keeps its benchmark interest rate at a record low following the end of a $600 bil¬lion asset-purchase program, said hsbc holdings plc.
the standard & poor’s gsci total return index of 24 commodities tumbled 6.9 percent last month, the first loss since august and the biggest drop in a year on concern growth may slow. the gauge rose 16 percent this year through april after rising 9 percent in 2010 and 13 percent in 2009 as output trailed demand.
fed chairman ben s. bernanke has indicated the bank won’t remove stimulus immediately after the second round of so-called quantitative easing concludes this month. the central bank will hold its policy rate in a range of zero to 0.25 percent until the year-end, a bloomberg survey of 72 economists showed.

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the chart of the day tracks the s&p gsci total return index and the federal reserve’s target rates in the past three decades. commodities typically move counter to borrowing costs and the gsci index has advanced 33 percent since the end of december 2008, the month the fed cut its benchmark rate amid recession.
“the long-term rally of raw-material prices isn’t over yet,” frederic neumann, a hong kong-based economist at hsbc, said in an interview. “with the end of the second round of quantitative easing, the fed will still not be in a position to raise interest rates anytime soon.” neumann expects no increases before the final quarter of 2012.
goldman sachs group inc., after recommending selling commodities in april, said may 24 it is turning “more bullish” and told investors to buy oil, copper and zinc as sustained economic growth will tighten supplies. morgan stanley last month raised its estimate for brent oil prices by 20 percent this year.

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