Gold set a record high and copper rose, for the fourth consecutive session, to a 14-month peak today as the dollar remained weak and buoyant equities drove investors to chase hard assets.
But US oil futures pared gains after industry data showed that US crude stocks rose much more than expected, outweighing the weakness in the dollar.
Positive business activity data from China, strong US housing and manufacturing numbers and easing fears of a relapse of the credit squeeze, that had been prompted by last week's debt woes in Dubai, have also revived interest in raw materials, driving the Reuters-Jefferies CRB index up 2.3 per cent this week.
The strengthening of the euro to around $1.51 and fears of inflation should the greenback continue to ease have sent speculators flocking to hard assets, especially metals, driving gold up by 20.6 per cent this quarter, on track for its biggest rise since the third quarter of 1986.
Gold hit a record high for a second day, up more than 1.5 per cent, at $1,215.45 an ounce, versus New York's notional close of $1,196.00.
Gold is set to rise further with a US interest rate hike unlikely for at least six months, said Ronald Leung, director of Hong Kong's Lee Cheong Gold Dealers.
But he also expressed caution over the pace of the rally.
"There has been too much good news and not so much bad news for gold," he said. "People are cautious at every record high level."
Gold is buoyed by hopes that central banks could diversify reserves, particularly China, after a report that India could buy more gold being sold by the International Monetary Fund.
After India's first purchase of 200 tonnes in November, central banks in Mauritius, Russia and Sri Lanka also stepped in to buy gold.
Base metals, which have seen large government stockpiling this year, also continued to climb.
London Metal Exchange copper hit $7,101 a fresh 14-month high as investors continued to return to the market after being scared off last week by news of Dubai World's debt problems.
"Things are looking steady. The dollar has given up the ground it took on the Dubai debt news. Dips are being bought and any positive news seems to mean new highs for copper," a trader in Hong Kong said.
"People are talking about copper at new record highs but those are still $2,000 away. The next level should be around $7,250, where things broke down last year. There is not a lot of fundamental justification for new highs. It's all about weight of money."
Copper prices have risen more than 130 per cent this year, on course for their biggest annual increase since at least 1978, but remain some way off a record peak of $8,940 struck in July last year before the collapse of global markets in the fourth quarter.
Sentiment received support from data showing China's economy was ending the year on a strong note, laying the foundation for a solid expansion in 2010.
From the United States, data showed a ninth straight month of growth in pending home sales, and a fourth month of expansion in the manufacturing sector, and an 8.8 per cent rise in auto sales in November.
NYMEX crude for January delivery rose 18 cents to $78.50 a barrel, after settling up $1.09, or 1.4 per cent, at $78.37 yesterday. Brent crude rose 23 cents to $79.58.
Oil has rallied from below $33 last December but has held in a narrow band of $70 to $82 over the past two months. Some analysts see little chance prices will push above the range, given ample supplies and little sign of strengthening demand.
"Oil sits in the cross-winds of a weaker near-term backdrop and a more favourable longer-term one," ANZ's senior commodities analyst, Mark Pervan, said.
"A lot now depends on forecast updates of the US winter season and the resilience of the US equity market. Both factors have been favourable to date."
Weather in the United States was also playing a part in other markets, as the harvest continued after a mostly favourable growing season, weighing on wheat prices.
"It is the beginning of the month and buying interest seems to have dissipated. Fundamentals are coming into play for corn and wheat," said Toby Hassall, an analyst with CWA Global Markets in Sydney.
"We are starting to see seasonal price weakness in corn as the crop comes into the market. Investors are very well aware that the world has ample wheat stocks and US free on board prices remain well above the offers from Russia and France."