Copper, Zinc Rise to Records; Supply Squeeze Fuels Fund Buying

May 5 (Bloomberg) -- Copper and zinc rose to records as threats to supply fueled buying by investment funds. Gold reached a 25-year high on increasing tension over Iran's nuclear program.

Copper has risen 75 percent this year as disruption at mines from Indonesia to Mexico limits supplies at a time when demand is increasing. Pension and hedge funds are pouring money into commodities to tap returns that are outpacing other assets. Fund investments in commodities may exceed $120 billion by 2008, up from $80 billion last year, according to Barclays Plc.

``Every hedge fund and gunslinger is getting into this market,'' Sean Corrigan, chief investment strategist at London- and Lausanne-based Diapason Commodities Management SA, which oversees $4 billion in assets, said in a telephone interview.

Copper for delivery in three months rose as much as $150, or 2 percent, to $7,800 a metric ton and traded at $7,675 as of 11:11 a.m. on the London Metal Exchange. Zinc advanced $25, or 0.7 percent, to $3,465 a ton, after earlier trading as high as $3,490. Gold for immediate delivery in London gained as much as $5.20, or 0.8 percent, to $684.90 an ounce.

Strikes and delays have depleted the world's stockpiles of copper, a metal used in wiring and plumbing equipment. Inventory in warehouses monitored by the LME dropped 1,725 metric tons, or 1.5 percent, to 114,250 tons, the LME said today, the biggest decline since April 5. Zinc inventory fell to the lowest in five years, losing 1,700 tons, or 0.7 percent, to 255,900 tons.

A six-week strike at a mine operated by Grupo Mexico SA, the world's No. 7 copper producer, is no nearer ending, the company said yesterday. Workers at Falconbridge Ltd.'s Lomas Bayas copper mine in Chile, the world's largest copper-producing nation, threatened to strike on May 8, asking for higher wages.

Production Increases

Copper prices are likely to extend gains because record prices aren't spurring production increases, Barclays Capital said in a report May 4.

Metals are leading a yearlong rally in commodities from gold and sugar to crude oil, as investors seek better returns than stocks and bonds. The Standard & Poor's index of shares has risen 5.1 percent this year. U.S. Treasuries have lost investors 1.9 percent this year, according to Merrill Lynch & Co. indexes.

Gold rose to a 25-year high in London today as increased tension between Iran and the U.S. spurred investors to buy the precious metal as a haven and a hedge against inflation.

Iran, the world's fourth-largest oil supplier, yesterday rejected U.S.-led demands that it halt uranium enrichment. Crude oil prices have risen to a record on speculation about disruption to Iranian oil supplies, raising concern about inflation and increasing the appeal of bullion as a hedge.

``Gold may rise to $1,000 before June should the situation in Iran intensify,'' said Bernard Sin, chief trader at Geneva- based MKS Finance, a precious-metals trading and refining company, in an interview.

Aluminum jumped $33, or 1.2 percent, to $2,908 a ton, the highest since June 1988.