Sunday, April 3, 2011

Recent Surge in Global Commodity Prices

While most of the news from Japan is about the earthquake and related events, there is a recent interesting report from the Bank of Japan:

Impact of financialization of commodities

Global commodity prices have been rising again since 2009, and particularly rapidly since the fall of 2010. While the strong increase in commodity prices has been driven by global economic growth propelled by emerging economies, speculative investment flows into commodity markets have amplified the intensity of the price surge. The dynamics of global commodity prices has been changing as well, in accordance with the growing presence of financial investors in commodity markets. The entry of new financial investors has paved the way for the "financialization of commodities". Consequently, global commodity markets have become more sensitive to portfolio rebalancing by financial investors, which has made commodity markets more correlated with other asset markets, including major equity markets. Furthermore, globally accommodative monetary conditions have played an important role in the surge in commodity prices, both by stimulating physical demand for commodities and driving more investment flows into financialized commodity markets.

In this country the groundwork was laid by former senator Phil Gramm who led the charge for deregulation. Of particular interest is the Commodity Futures Modernization Act of 2000 which allowed hedge funds to trade agricultural commodities.

More than ethanol, the money traders have driven up costs for dairy farmers.


  1. As one who is of an Austrian economic philosophy the greatest inflationary force in commodities is the Fed's printing of money to fiance the Federal Governments deficit spending which really ramped up in the 3rd Quarter 2010. It takes 2 to 4 months for that spending to impact the financial markets and the commodity market. If one will look the most of the second stimulus was not spent until after July 2010. The money traders are just doing what they do best and that is trade money and goods, they don't put the money out there.

    Jeff Burdick Sr.

  2. I really appreciate your post and you explain each and every point very well.Thanks for sharing this information.And I’ll love to read your next post too.
    Share Tips