Wednesday, April 13, 2011

Are Commodity Prices Set For A Fall?

At Yahoo Finance, from Barron's:
The cure for high prices is high prices. That is the ineluctable logic of the commodity markets, and it is on display in the trading pits.
Commodities took another hit Tuesday after Goldman Sachs' analyst team advised cashing in chips on its winning bets on CCCP — crude oil, copper, cotton and platinum — after a 25% run-up since December.
(Goldman seems to have an affinity for acronyms after having come up with the ubiquitous BRICs, for the emerging economies of Brazil, Russia, India and China, a few years ago. As for CCCP, one presumes the acronym is not out of nostalgia for Soviet Union, given those are English letter analogs for the Cyrillic initials of the USSR.)
High prices cure high prices through "demand destruction" as scarce supplies are rationed to those willing to pay high prices. Goldman contended in a report Monday that was beginning to happen in the U.S. as retail gasoline prices approach $4.00 a gallon.
That also was the view of the International Energy Agency. "There are real risks that a sustained $100 dollars a barrel-plus price environment will prove incompatible with the currently expected pace of economic recovery," the IEA said in its monthly report.
Those assessments followed a downgrade of global growth prospects by the International Monetary Fund in part because of the impact of rising food and energy prices, which take a greater toll on the fast-growing emerging economies, which have led the rest of the world out of recession.

No comments:

Post a Comment