March 12, 2008 at 12:00 pm by Tom Lydon
Since August 2007, the most commonly traded commodity-centric exchange traded funds (ETFs) are up about 50%. The spiking commodity prices are shouldering much of the blame for the inflationary threat to the economy.
But those price jumps can’t be blamed on the supply factors, says Mike for HedgeFolios. That leaves demand, but the type of demand is up for debate. There’s consumption demand taking place in China. It couldn’t be entirely the result of natural demand - the prices are rising much more sharply than the natural demand.
Many politicians and investors point the finger at commodity traders for the run-up in prices. Hedge funds do not have the power to make prices rise so fast. The combination of monetary and fiscal policy of the U.S. government mixed with investment demand can be blamed, as the failure of the policies, too. If the Treasury and The Fed continues to devalue the dollar, the trend will continue.
The only way commodities will start dropping in value is if: the economy stabilizes, the dollar appreciates, the stock market bottoms out or the credit crisis clears. Until then, they are adding to the growing inflation problem.
Tags: Agriculture, Asia, China, Oil
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March 13th, 2008 at 9:36 am
One element to consider is the change in ratio of use to stockpiles and the timing element for rebuilding or adding to stockpiles - a “future” event.
I believe stats will show that rate of use has been climbing faster than the rate of stockpile building (the latter is negative in some commodities).