May an expert please explain why commodities are down?

[TheOraclePaul]

I have been reading a lot about whether or not we are going to have deflation or inflation in the coming crisis. I would like to know if anyone has a GOOD explanation as to why commodities have come down so much in recent days. I understand that some of it may be demand related, but if we are to believe that a lot of the price built into these goods is inflation (a result of an increase in the money supply), then it could not of come down that much simply due to demand. Are forces being manipulated behind the scenes? How is the US dollar getting STRONGER despite announcements like keeping the rates at 2% and the housing bailout bill? I would like a comprehensive explanation for this, if anyone could provide it.

Last but not least, WHAT should one invest in if either scenario is to play out: deflation or inflation? I know that gold/silver are good at either end of the spectrum when the result is EXTREME. However, in a deflationary period, holding cash/interest bearing notes is a good option too (which would be a terrible idea in a time of inflation). Please let me know, and thanks!

 

[bucfish]

Rodgers predicted that the dollar would have a short lived rally. This is that short rally. Beware!

 

[acptulsa]

The two most unstoppable forces Wall Street has ever known are irrational exuberance and sheer panic. /

 

[digg_my_youtube]

Yeah, one thing can always be certain in any market and that is temporary distortion. The market almost always reacts differently in the short term in comparison to a longer time frame.

 

[acroso]

It's a fool's rally. The rally could go on for a while, but Bernake is not taking steps to fight inflation as far as anyone can tell. In fact he keeps pumping liquidity up.

No reason to expect anything to change in the long term.

I'm not a big fan of investing in only gold though. I think broad based commodities has always been a better approach since it is more secure.

 

[torchbearer]

very few trends in the market are a straight line. there is money to be made in rallies, and with enough shares in your control.. like a huge fund, you can provide artificial mini-rallies on your way down.

 

[eric_cartman]

well... the dollar had a huge rally in the last few days. it's pretty much gone up in a straight line, but that won't last. it will crash down even harder.

oil prices are still correcting... and i wouldn't be surprised if oil falls a little further. (i think $100 is the floor for oil at the moment, unless lindsey williams turns out to be right).

on the gold and silver front (which is where all my investments are, and my dad just bought a lot of stock in big gold company)... I have always been saying that the floor in gold is $850. So as long as we stay above $850, i don't think there's much to worry about. I'm pretty sure that next week, gold will turn up, and the US dollar will turn back down. i think we're at the bottom in gold now, and if anyone was looking for a time to buy, either buy now, or wait until monday to ensure that it's moving back up. if gold goes below $850 by any significant amount of any significant amount of time.. .then i'll be a bit scared. and it's an election year, so crazy stuff can happen. but i still believe that we will see the big gold boom at the end of august, early September.

this is a bear market rally... it's not the end of the commodites boom... there is no commodities bubble, so it certainly didn't pop... i think things will go back to normal next week, and we'll see the explosion in September.

 

[digg_my_youtube]

You can make a heck of a lot more money in a down market than you can in a bull market in about a third of the time. People need to stop trading stocks, especially in times like these, and switch to Options trading. It's less risky than stocks (if you know what you're doing and employ spreads in your strategy), costs a fraction of the price, and your losses are completely limited. The only way to make money in a down market with stocks is either to buy the right stocks in the right sector (very tough to do), or to short stocks, which requires a massive amount of capital and involves, theoretically, unlimited risk with only limited upside. Stock shorters can make a heck of a lot of money fast, but they can also lose it and potentially more.

My advice: Stay out of stocks, trade only options unless you can day trade in which case if you have that much capital at your fingers, you wouldn't be asking why commodities are down

 

[Johnnybags]

Demand destruction across the board

People are cutting back, industry is cutting back. Its why you see all sorts of businesses going belly up and laying off employees. Make sure all chips are cashed in before the years end. Sooner the better. Next year is a whopper. NY,CAL,OH,MI are going to get whacked hardest as unemployment soars at the exact time their unemployment funds dry up. Also many companies need to refinance debt next year and its going to be tough so probably more equity dilution. Commodities will reinflate in earnest when the BOE and ECB cut rates, not until. They will do it when inflation actually goes down which could be a report or two away.

 

[AJ Antimony]

Expenditures like the Housing Bill are by no means felt in the economy so quickly. They don't even know how much money is ultimately going to be spent from it!

I forget if it was Schiff or Paul who said stuff like this usually takes a full year or two before they start affecting the economy, so don't worry. Oil will go up, gold will go up, dollar will go down.

 

[Truth Warrior]

My SWAG, "smart" money profit taking.

 

[born2drv]

Demand destruction is a big part of it.... but remember what Ron Paul said.... what we're doing now is giving drugs to a druggie... the bailing out of the banks, Fanny/Freddy, stimulus checks, etc, etc, is all producing a temporary high. The underlying problems still exist. Give it some time, inflation is still high and it will catch up with the printing presses soon.

 

[cska80]

People are cutting back, industry is cutting back. Its why you see all sorts of businesses going belly up and laying off employees. Make sure all chips are cashed in before the years end. Sooner the better. Next year is a whopper. NY,CAL,OH,MI are going to get whacked hardest as unemployment soars at the exact time their unemployment funds dry up. Also many companies need to refinance debt next year and its going to be tough so probably more equity dilution. Commodities will reinflate in earnest when the BOE and ECB cut rates, not until. They will do it when inflation actually goes down which could be a report or two away.

You can add RI to that list. Unemployement is at 7.5% at the moment and we're showing a negative population growth. We're in a deficit that is continually growing.

 

[Dr.3D]

Are forces being manipulated behind the scenes? How is the US dollar getting STRONGER despite announcements like keeping the rates at 2% and the housing bailout bill? I would like a comprehensive explanation for this, if anyone could provide it.

This might help explain why the dollar is getting "STRONGER".
http://www.ronpaulforums.com/showthread.php?p=1602627#post1602627

 

[Anti Federalist]

As economies weaken, demand for commodities decreases.

The dollar is only getting "stronger" because the economic woes of EU nations and the UK are just coming to the fore now.

So traders shuffle money out of commodities and euros and into dollars.

The underlying core bankruptcy of the US fedgov is seldom taken into consideration, however, it's still there. So the traders chase short term gains, resulting in mini rallies and spikes, but the chase is still on a downward spiral.

(hat tip to Dr. 3D for the post and chart)

This is also another teaching moment for the great unwashed. The run up and decline in oil prices is mostly closely pegged to the comparative worth of the dollar, and has very little to do with "speculators" and even less to do with "evil oil companies".