• RJ/CRB index set for strongest quarterly gain in 35 years
• Oil climbs $2 on Mideast tensions, nearing record high
• Non-exchange traded iron ore and coal may be next winners
  

COMMODITY markets extended gains on Monday, heading for their strongest quarterly rise in 35 years, as tight supplies, jittery financial markets and a crumbling dollar drove investors to inflation-resistant assets.

By Friday's close, the Reuters/Jefferies CRB index was up 20 per cent in the second quarter, its second biggest quarterly gain ever after a 22.5 per cent rise in 1973, and has climbed nearly 30 per cent in the first half as investors chased exposure to record-high energy, food and metals markets.

Oil prices surged another $2 to near last Friday's record of almost $143 (S$195) a barrel amid escalating tensions in the Middle East, while corn prices hovered within sight of last week's record ahead of a government report that should give some clues to the extent of flood damage to US Midwest crops.

But many analysts said the pace would have to slacken as world economic growth slows and the dollar recovers.

'It will be interesting to see if developing Asian demand will offset what is shaping up to be a tough time for Western economies and I'd be surprised to see a repeat of these gains in the second half.'

US light crude for August delivery rose $2.08 to $142.29 a barrel by 0737 GMT, trading just short of the record of $142.99 struck on Friday, while the euro was around a three-week high against the dollar above $1.58.

'We see crude prices remaining at high levels, perhaps easing a little. In base metals we think we'll see a gentle downward trend,' National Australia Bank analyst Gerard Burg said.

London Metal Exchange copper for delivery in three months rose $45 to $8,575. London copper has risen more than 28 per cent so far this year and is about $300 short of a record high of $8,880 touched in mid-April.

'LME copper could go higher and may take out the record high, but prices in China will be flat,' a trader in Shanghai said.

Threats to supply, most recently a nationwide strike by Peruvian mineworkers, and limited stockpiles, have supported the market, despite slowing growth in the United States and China.

Next big rally?
Mr Burg said investors looking for the next big rally would have to chance non-traditional markets, some of which have already doubled or trebled in price, even without the influx of investment and hedge fund capital that some US lawmakers blame for driving up food and fuel prices.

'Some of the biggest gains in commodities are likely to be in non-exchange traded markets such as coal and iron ore,' he said.

Rio Tinto recently settled annual contracts with Chinese steelmakers at prices more than 95 per cent up from last year for iron ore lumps and BHP Billiton, yet to agree on iron ore, won a 200 per cent rise in coking coal.

Spot gold up 11 per cent year to date, rose $1 to $928.20 an ounce from late in New York on Friday - below its record $1,030.80 in mid-March - giving it scope to rally, especially with inflation accelerating across the globe.

'The dollar doesn't seem to have any luck at all and the oil price is at the higher end. Things seem to be in favour of gold for the time being,' said Mr Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

Soft commodities, in particular corn, have been the other standout performer so far this year.

Chicago July corn futures which hit a record high of $7.65 a bushel on Friday, rose 0.2 per cent to $7.56. Corn was the second strongest performer this year behind gasoline rising 68 per cent.

CBOT July soybean futures rose 0.78 per cent to $15.93-per bushel as forecasts for more rain in already saturated areas added to concerns about the crop.

'Poor weather conditions and expectations for acreage losses for corn later today by USDA are bolstering the grain market,' said a trader at KEB Futures in South Korea. -- REUTERS