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Are Commodity Prices in for a Decline?

Question: Do you think we are in a long-term commodity boom, or will the rise in commodity prices come to an end if China suffers a set-back, as Marc Faber seems to think will happen later this year?

Paul Solman: The thing about China, as MIT’s Yasheng Huang has long pointed out, is that because of its lack of transparency – or even transluscency – you can’t really tell if they’re suffering a setback ALREADY.

But yes, if China retrenches, I would think commodity prices are in for a rude adjustment. Depends on which commodities, though. As loyal readers of this page know, I thought speculation had driven oil to unsustainable heights a few years ago, and actually bet that it would drop in price, as it spectacularly did. But gold is a commodity too and IT has been rising in price, an especially curious turn of events considering the dollar has strengthened against other currencies and other commodities have FALLEN in price, as measured in dollars.

If there’s another global recession, most commodities would figure to take a further hit. But given all the government debt out there, and all the money governments have created, commodities like gold (and silver?) could experience a very different fate.

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