Sunday, November 14, 2010
Commodities Fall off a Cliff
Commodity prices have been rising at a rapid pace over the past few weeks. Now the prices are finally appearing to fall as the prices of precious metal, oil, and agricultural raw materials all dropped on Friday. This drop in price derives from inflation in China. Investors became concerned with this inflation and expect a rise in interest rate in China, which would deter investment. In addition, China's large consumption of raw materials leads many to believe that there will be a decrease in demand for commodities. This directly resulted in the drop of commodity prices in order to prevent lower demand. When prices increase demand will decrease and with the combination of the prices increasing and the Chinese inflation, demand could have declined tremendously. So this drop in prices is an attempt to maintain stability in the demand levels for commodities.
Subscribe to:
Post Comments (Atom)
Tim,
ReplyDeleteIt's interesting that commodity prices are falling when I have read a lot of new articles about increasing prices in consumer basket goods. With countries like Brazil increasing their economies of scale through mass production, I think the prices of commodities will rely a lot on technological development in emerging economies. Even though they might fall off a cliff, I expect a parachute of scarcity to keep them high enough.