Forecasts for Commodity Futures Markets

January 24th, 2008 | predictions -

In this post, we looked at what is meant by the commodity futures market

Often the best way to predict future economic data is to see what happened in the past. Last year saw rapid increases in the price of many commodities (despite low global inflation)

The price of many commodities increased, but, in particular commodities such as Gold, oil, energy sources and soft commodities such as coffee and wheat.

commodity futures

Source: Bloomberg Commodity prices

What will determine the price of Commodities in the next year?

Like any good, we can explain price changes and predict future price changes on the basis of supply and demand.

On the demand side we have seen strong economic growth in Asian countries such as China, India and to a lesser extent Europe. Fears of a US recession may lead to slower global growth, but growth from China and India may outweigh the slowdown in US growth. The US no longer dominates the world economy; strong demand will probably be maintained from other countries.

When the Dollar is Weak Buy Gold

Another aspect of commodity prices is the interrelationship between the dollar and commodities. When the major global currency – the dollar is weak – people instinctively look for an alternative and this is usually commodities such as Gold.

With increased economic instability gold is seen as a safe investment. in 2008 and 2009 we are likely to see further problems from the global credit crunch and the US housing market difficulties. Therefore, whilst the US economy remains weak, the dollar is likely to continue falling and Gold will remain an attractive alternative.

Note: this weak the FED cut interest rates by 0.75% a response to economic concerns over the stability of the US economy

Supply Constraints and Future Markets

Another aspect is that the supply of many commodities has been falling due to various factors.