Commodities posted the biggest rally in almost eight months on speculation that increased factory output from China to the U.S. heralds rising raw-material demand.
The Standard & Poor’s GSCI Spot Index of 24 commodities rose 3.4 percent to settle at 666.55 at 4:19 p.m. in New York, the largest gain since May 9. Silver jumped the most since July, leading the advances, and crude oil closed at a seven-month high.
Manufacturing in December improved in Switzerland, China, India, the U.K. and Australia, according to data released this week, while the Institute for Supply Management said today that U.S. factories expanded at the fastest pace in six months. Signs of growth are helping assuage investors who sold commodities last month amid mounting concern that the European debt crisis would hinder the global economy.
“It seems as though overnight we got some real optimistic thinking, and that’s swaying investors,” James Cordier, the founder of Optionsellers.com in Tampa, Florida, said in a telephone interview. The economic reports “suggest there’s light at the end of the tunnel, and that’s something we haven’t seen for quite a while.”
Silver futures for March delivery jumped 5.9 percent to $29.572 an ounce on the Comex in New York, the biggest increase for a most-active contract since July 13. The price will rise to $40 this year, Blackstone Group LP’s Byron Wien said.
Oil futures for February delivery rose 4.2 percent to $102.96 a barrel on the New York Mercantile Exchange, the highest settlement since May 10. Heating oil jumped 4.3 percent.
Raw-sugar futures for March delivery rose 5.2 percent to 24.51 cents a pound on ICE Futures U.S. in New York, the biggest gain since Sept. 29.
In the fourth quarter, the GSCI index tumbled as much as 25 percent from a 32-month high of 762.22 on April 11.
“The sentiment at the end of last year had gotten so negative that a rally was inevitable,” James Dailey, who manages $215 million at TEAM Financial Management LLC in Harrisburg, Pennsylvania, said in an interview. “The real question is whether this can be sustained.”
Gold futures for February delivery climbed 2.2 percent to $1,600.50 an ounce on the Comex, the biggest gain since Oct. 25.
On ICE, cotton futures for March delivery rose by the exchange limit of 4 cents, or 4.4 percent, to 95.8 cents a pound, the biggest gain since May 31.
Wheat in Kansas City was the only GSCI component to post a drop.
Bearish economic indicators in coming months “could pop optimism” on commodities, Dailey said.
The outcome of Italian debt auctions in coming weeks may influence prospects for commodities, Cordier of Optionsellers.com said. Italy auctioned 7 billion euros ($9.14 billion) of debt on Dec. 29, less than the 8.5 billion euros targeted.
“If the Italian auctions can just do well enough that people aren’t averting their eyes, then I think this rally can last,” Cordier said.