By Sreekumar Raghavan
These are uncertain times not only for commodity, equity and financial markets but for analysts and writers who comment on these sectors. Already, one major analyst who predicted crude oil will rise to $200 has been silenced by its recent fall to $70. As gold prices have climbed in recent times attracting safe-haven investors running away from equities and commodities, one analyst has now predicted gold would touch $2,000 an ounce.
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Apart from such wild-card predictions and die-hard commodity lovers such as Jim Rogers, nobody is betting high on commodities. It is not surprising that predictions fail if they are based on a static model concept of global economy. Already rising food prices have led many countries to invest more in agriculture which could be reflected in production figures of late 2008-09.
“Despite media and public attention to the recent price surge, a steady increase in rice prices from 2000 went largely unnoticed. From 2001 to 2007, rice prices nearly doubled primarily because of a drawing down of stocks to meet the deficit arising out of deceleration in yield growth,” according to Samarendu Mohanty of IRRI, Manila. Similarly, nobody predicted the mischief the credit default swaps could create in the market as banks continued to issue them merrily.
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In a recent report in Telegraph UK which described the present crisis as the worst slump since the 1929 Great Depression, the paper quoted a Deutsche bank report which warned that Britain is even more vulnerable than the US or the euro area, as it predicted that the powerhouses of India and China would fail to support the wider global economy through the downturn. But there are other analytical reports which say that the present economic downturn can in no way be compared to the Great Depression.!
Why commodities look doomed?
Latin America is already stunned by the abrupt end to commodities boom. Argentina, one of the world’s leading producers of soybeans, corn and wheat could lose as much as $6 billion next year in agricultural exports, according to one estimate. Many governments, including Brazil, may have to rethink ambitious plans meant to improve infrastructure and reduce poverty, according to a report in New York Times.
With prices down from record highs, alarmed farmers who covered vast tracts of pampas and rain forest in Brazil, Argentina, Paraguay and Bolivia with soybeans are wondering whether the boom has turned to bust. Anxiety has replaced the rural bluster, according the NY Times report.
JP Morgan, which has given a bullish rating for gold, is not so bullish about the industrial precious metals such as platinum, palladium and silver which could be hurt by lower demand in 2009. Since the historical high posted in last March, Palladium price action has plunged by 62% as it fell from $2,327 to $881 an ounce.
