Whilst the politicians in the USA are thinking of legislating to stop speculators in commodities, and MPs in the UK are busily enquiring into whether there has been speculation in commodity markets or not, the real world has moved on apace. The share prices of commodity producers are indicating falls in energy and some commodity prices, oil has tumbled more than 10% in a few days, and some metal prices are in retreat. As so often, the politicians are busy talking about shutting stable doors long after the race horses have bolted.
No-one can be sure this is the decisive turn we have been waiting for in commodity and energy prices, but it has been likely for a few weeks that some of the froth will now go out of these markets. The news background for final demand for energy and raw materials is grim, with Asia tightening to squeeze high inflation out of the system, and with the West still in the iron grip of a Credit Crunch with a weakened banking system. If commodity prices are ever going to come down, now would be as good a time as any. It is most unusual for the price of anything to surge ever upwards in a straight line.
I have written before on how there is speculation and investment in commodities as well as higher overall demand from Asia, and explained how this could depart as quickly as it arrived. I find it odd that anyone could think otherwise, or think it worth spending time debating it. Once speculators and nervous investors see prices falling, some will decide not to hang around and will add to the selling pressure.
It is good news today to learn that there is strong price competition on the forecourts lowering the prices of petrol and diesel at last, after several months of ever rising prices. It reinforces my message to the Bank of England – fight recession, inflation will subside as and when these prices come down. The markets which have made it so difficult for muddled Central Bankers in recent months are at least temporarily coming to their aid. Letâ€™s hope, like drowning men and women, the Monetary Policy Committee members grab this lifeline now itâ€™s being thrown to them. They should cut interest rates without delay.
(Please note this expression of opinion is not investment advice)