Commodities Funds Rebound, Led by Gold

Alcoa(AA) yesterday produced a surprise third-quarter profit. The largest U.S. aluminum maker avoided losing money for a fourth consecutive quarter by laying off workers and securing cheaper raw materials.

Commodities prices for energy, food and industrial metals like aluminum have performed poorly over the past year. That's to be expected during a deep recession. The $3.5 billion PowerShares DB Commodity Index Tracking Fund(DBC), down 24% over 12 months, invests in a broad base of commodities such as corn, wheat, crude oil and precious metals.

The United States Natural Gas Fund(UNG), the worst performer among the largest commodity funds, has lost 60% of its value in the past year and shrank 1.9% in the last three months, leaving it with $3.2 billion in assets. The other fund losing half its value in a year, United States Oil Fund(USO), added back just 6.4% in three months, ending with $2.1 billion in assets. TheStreet.com rates both funds "sell."

Gold and silver are breaking out to new highs in response to a weak dollar and expectations that inflation will return with a vengeance. Yesterday, gold topped $1,061 an ounce, an all-time high. The rise is attributed to hoarding by individuals and investment managers, not a renewed demand for jewelry.

The SPDR Gold Trust(GLD), the biggest commodity fund, with assets valued at $33 billion, is up 17% in a year and 13% in three months. That fund and its much smaller competitor, iShares COMEX Gold Trust(IAU), earned A-plus, or "buy," ratings this month.

Accelerating upward at $17.84 an ounce, even silver is making a run toward its March 2008 high of $21.36. The iShares Silver Trust(SLV) has skyrocketed 52% in a year and 34% in three months.