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Commodities Go Kerplunk: Why Are Prices Falling?
It’s official: The five-year long Commodity boom has gone from white-hot to white-not. To wit: since the start of July 2008, the futures markets have seen more jaw-dropping free falls than the Beijing Olympics diving competition.
As for the biggest splashes ---
- Crude oil: On August 22, prices endured their biggest drop in dollar-terms since the start of Gulf War One. Oil is down 20% from its July 11 record peak
- Gold: On August 19, prices endured their biggest weekly decline in 25 years before rebounding above the $800 per ounce level. The market is still 20%-plus below its mid-March peak.
- Silver: Down 43% from its mid-March peak.
- Corn: Down 24% from its July 2 high
- Copper: Down 20% from its July 2 high
- And, this July, the Reuters/Jefferies CRB Index of commodities saw its biggest drop in 28 years. The Index is now down 14% from its July 3 peak
(Across-the-board declines of 20% or more: The COMMODITY sector has formally entered bear market territory. Now, the August 2008 Elliott Wave Financial Forecast reveals whether the recent rout is brief blip or bubble bursting. Learn More.)
That’s the what. As for WHY commodity prices are plunging south, well -- The mainstream financial media offers more sides to the story than a house of mirrors, their “reflections” on the sell off as infinite and varied.
Case in point: “A stronger dollar spurred declines for metals and oil prices. Everything’s about the dollar trade right now. The [buck’s] bounce has completely crushed commodities.” (Bloomberg. Aug. 22)
Got it: The U.S. currency moves contrary to commodities, as the two sectors are “driven” by opposing fundamentals, right? Well, then how do you explain these recent news items?
- “Fears of more weakness in the U.S. economy send the dollar sinking.” (CNN Money)
- “Commodities dive as concerns grow about the impact of a global economic slowdown on commodity demand. Crude oil falls on signs that a U.S. economic slump will extend into 2009.” (AP)
Not to mention the error of timing, namely: The U.S. dollar did not decisively break out of its five-month long sideways trend until the first week of August. Yet -- commodity prices started their synchronized swan dive in early July.
From the moment its heels touched the edge of the platform, the July 2008 Elliott Wave Financial Forecast (published June 27) went on high alert to the downside potential facing the commodity sector. In the Financial Forecast’s own words:
“…Whereas the underlying driver of stock prices is a rising sense of optimism, commodities are driven by fear… [This] suggests energy trading has reached an important mania era endpoint.”
The July 2008 publication also noted the emergence of “parody” and “satirical financial takes” on the commodity mania and wrote: “This, is in fact what happens when a bubble is about to burst.”
Following on its heels, the August 2008 Elliott Wave Financial Forecast added: “The stage is set for a long-term reversal that permeates the commodity markets.”
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