Commodity Markets – Falling prices – What’s driving prices down??

This is with respect to falling prices particularly bullion, base metals and other commodities since last two weeks. Since their respective peaks in 2011, copper prices are down 36 % and gold has tumbled 38 %.

As soon as the news about liquidity crunch in China led by tightening by their central bank and the US Fed Reserve’s famous Quantitative Easing (QE) program’s imminent end emerged, Dollar strengthened across the board and commodity markets got spooked and commodity prices started falling. Since commodities are quoted in USD terms there exists an inverse correlation to the movement of the USD.

Since 2000’s commodities witnessed spectacular price rise, driven by expectations of the ever increasing appetite of the “BRICS” nations especially China and India for commodities as these jumped in the economic super power race. Precious and base metals and prices touched record highs.

With the latest price decline since last three months, some are speculating whether the super cycle in commodities has ended or not. However, some believe that the super cycle isn’t over yet, only brakes have been applied to it.

I believe some of the euphoria has and will die down. I dont know how many of you people noticed but Sharmin Mossavar-Rahmani, Goldman Sach’s chief investment officer of the Private Wealth Management Group (PWM), responsible for overall strategic asset allocation and tactical investment strategy within PWM, actually referred to Goldman’s BRICS call as a “costly mistake”. She said that investors would have been better off sticking to the developed markets for their investment purposes.

Countries like China and India continue to be very big consumers of various commodities. May be they have deferred their purchases, but it doesn’t mean that demand has stopped altogether. All these countries would return to market at a certain price. Gold is at important pricesupport @ 1180 $ internationally; Rs 24800 in domestic markets. Let us see if it holds ….


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