Commodities claw back after sell-off

Commodities have rebounded from their biggest plunge since the financial crisis on the back of upbeat US economic data, rising demand from emerging economies and a falling dollar.

After suffering their biggest weekly drop since December 2008 last week, commodities bounced back strongly on Monday, with oil and silver leading a recovery which some economists speculate could be the start of a new rally.

Standard & Poor's GSCI Index of 24 commodities advanced 2% in morning trading in London after the index dived 11% in five days last week, reported Bloomberg. 

In particular, investors are piling back into silver and oil. Silver, which led last week's sell-off after suffering its biggest slide in thirty years, has rebounded by more than 5% whilst brent crude, which dropped 15% last week, has broken above $111 a barrel.

Reflecting the commodities fight-back, Dow futures climbed 32 points in pre-market trading and Nasdaq 100 futures gained 10.5 points.

However, the positive commodities sentiment failed to lift the main European indices which are all languishing in negative territory. Whilst London's FTSE was down 0.8% to 5,925 in mid-afternoon trading, Germany's Dax ticked down 1.2% and France's Cac 40 is 1.4% in the red.

The recovery in commodity prices comes after the US Labor Department said on Friday that payrolls increased by a better-than-expected 244,000 workers last month - the biggest increase since May 2010.

In addition to the buoyant jobs data, commodities have also benefited from a fall in the dollar which has declined against a basket of international currencies after strengthening strongly last week. The green-back is currently down 0.21% against the euro to €0.69660.

Continuing demand for commodities from emerging nations, such as India and China, at a time when supply is tightening has also fuelled the commodities fight back and fuelled expectations of a rally. Hopes inflation in China cooled last month have also helped push up prices.

Some analysts now expect a new commodities rally after the dramatic sell-off, with many economists of the opinion the speed and extent of last week's plunge represented an over-reaction from markets.

According to data compiled by Bloomberg, the value of all 24 commodities tracked by the S&P GSCI index was about $805bn on May 6, compared with $891bn on April 29.