Is there a big commodities rally underway? Let's look at the numbers:
- The Commodity Research Bureau index (CRB) of 19 energy, metal and agricultural prices gained 14%, the most since 1974
- Gasoline soared 30% in May
- Gold and copper also surged
- Corn and soybeans reached their highest levels since last September
- Crude oil has jumped 29%, the most since 1999
- Gasoline futures for June delivery surged 31%, the most since 2006
- Cotton futures were up
- Gold is at $980.00 per ounce
- Silver posted the biggest monthly gain in 22 years
So you are probably asking: What is fueling this rally?
- First and foremost, we are seeing signs that the recession is abating
- The government has committed $1.3 trillion in stimulus packages to jump start the economy
- Economic reports from the U.S. to Japan to India are showing economic optimism
- Japan's industrial production jumped the most in 56 years in April
- India's economy expanded more that economists predicted in the first quarter
Commodity futures contracts are actually "future contracts" that predict prices forward for several months, even years. This rally is indicating that looking forward, world economies will get stronger, hence the need for more raw materials and consequently higher commodity prices. Now, whether this scenario plays out in real time is anyone's guess.
The key question we might ask is: Has the present rally in commodities already discounted many of the factors just described, or is there more to come?
Do you believe that this commodity rally will continue?
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Reader Comments (Page 1 of 1)
5-29-2009 @ 4:23PM
Iridium said...
A huge commodity rally only means one thing down the road, massive inflation.
Couple massive raw material cost with the money supply and you have a recipe for the highest rate of inflation in history.
If we don't take down Wall Street a loaf of bread will cost $500 at the end of next decade.
To say anything other than pure greed based on pure speculation with no evidence is driving this rally is flat out wrong.
This is a profit driven rally to bolster the books of a few wealthy players. The common man is being thrown under the bus. A complete and total collapse of the world economy is imminent unless the massive speculation of commodities is put in check.
We are in a far more precarious position right now than we ever were last year. At least last year there was some data to back up the position of trades. Today there is nothing other than a fart in the wind.
5-29-2009 @ 5:31PM
Beltway Greg said...
Iridium, for lord's sake you're in a fine mood these days. Anyway called this one months ago. Dude, between a fart and nothing, I'll take the fart.