Food prices are skyrocketing. Commodities prices are at historic highs. Stock markets are in disarray. Are commodities markets getting into a bubble that would burst soon? Will the fluctuating US dollar and Euro zone worries hit the commodities market? Look at the commodities prices today. Natural rubber is at historic high thanks to heavy rains that have badly hit tapping in major producing countries like Thailand, India, Malaysia and Sri Lanka. Pepper prices have nearly doubled in the last one year thanks to the acute shortage of the spice—because of low production—in several pepper growing countries. There have been acute production shortages in major food commodities like rice, wheat, corn etc. Prices of most agricultural commodities have just zoomed or doubled in the last one year.
It is not just the agricultural commodities. Take the case of metal commodities. Price of gold, silver, copper, zinc, aluminium etc have all skyrocketed in the last one year thanks to low output and rising demand. The result is that investors who have piled their money into commodities have earned rich dividends.
Commodities specialist Ben Mathias says commodities are in a boom cycle that will continue for some years.
“There are several reasons why commodity prices are booming. First and foremost is that production of several crops and metals commodities are going down while consumption of these is going up. So there is a serious demand supply imbalance, which is creating the price rise,” Mathias said.
According to him, commodity market is in a bubble because price shocks coming from various quarters affect commodities globally.
The commodity boom in the last one year has been led by gold, silver and copper in precious and base metals. Mathias does not see the prices of these metal commodities coming down.
“People are simply putting their money into these commodities because they are nervous of investing in stocks and bonds these days. Commodities have given better returns than stocks and bonds in the last one year,” he added.
Puru Saxena, founder of Puru Saxena Limited, a Hong Kong based firm which manages investment portfolios for individuals and corporate clients, says now, “if the Federal Reserve continues with its money creation antics, it is conceivable that we may get a run on the US Dollar.”
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