Commodities soar as bailout stokes inflation fears

Commodities prices soared Monday as nervousness about the government's $700 billion plan to rescue the financial system dragged down the dollar and pointed investors to the relative safety of hard assets.

Gold, silver, copper and agriculture futures all shot up, while crude oil briefly spiked more than $25 in the biggest one-day gain ever.

As officials in Washington hammer out the details of the mammoth bailout package, investors are already weighing in with questions about what impact it will have on the U.S. economy and taxpayers. Among their concerns is the heavy borrowing the government is expected to undertake to pay for the plan — a move that sent the dollar lower versus its main rivals.

"What they're doing is very, very inflationary ... and a lot of people think the dollar is going to get crushed," said Matt Zeman, head trader at LaSalle Futures in Chicago. "If I'm nervous about putting money in a bank, I'll go out and buy gold and bury it in the back yard."

Gold for December delivery jumped $44.37 to settle at $909 an ounce on the New York Mercantile Exchange, continuing a sharp upward climb that began last week. Gold soared $70 during a feverish rally on Wednesday, the biggest one-day price jump ever.

"We could see gold hit the $1,000 level any day now at this rate," Zeman said. "Equities are still extremely shaky and people are putting money back in gold because in the long run this (bailout) is going to drive up inflation."

The 15-nation euro rose to $1.4796 in afternoon trading, up from the $1.4470 on Friday. A weak greenback often encourages investors to pour money into precious metals and other commodities that are known for holding their value during times of rising inflation.

Other precious metals also shot up. December silver jumped 97.5 cents to settle at $13.45 an ounce on the Nymex, while December copper rose 7.85 cents to settle at $3.255 a pound.

Uncertainty about the government rescue plan also sent oil higher earlier in the day, but prices began skyrocketing later as investors rushed to cover short positions, or bets that prices would fall, before the October contract's expiration at the end of the day.

Light, sweet crude for October delivery jumped as much as $25.45 to $130 a barrel on the Nymex before falling back to settle at $120.92, up $16.37. It was crude's biggest single-day price jump ever; the previous record was a $10.75 gain on June. 6.

The November crude contract, which became the front-month contract at the end of Monday's session, settled at $109.37, up $6.62, still a very sharp gain.

Crude has gained about $30 in the past four days as investors rush back into the commodities complex, halting a steep slide below the $100 barrier.

"The safe-haven argument is being revived and the energy demand destruction argument is being shelved for the moment," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

In other Nymex trading, heating oil futures rose 14.52 cents to settle at $3.043 a gallon, while gasoline futures rose 10.41 cents to settle at $2.7038 a gallon.

Meanwhile, agriculture futures traded higher as the weaker dollar boosted buying of corn, soybeans and wheat.

Wheat for December delivery rose 19.75 cents to settle at $7.3775 a bushel, while December corn added 16.25 cents to settle at $5.585 a bushel. November soybeans jumped 61.5 cents to settle at $12.05 a bushel.

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