Seeking Value in Commodity Speculatio

Posted on November 28th, 2009 in Finance by

Seeking Value in Commodity Speculatio

With the decline of the value of the dollar by over 10 percent over the last year, the need for items of long-term value is increasing. Many inves

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tors have gravitated to gold and other precious metals, but base metals, energy supplies and other commodities are also favored. There has been a long-term increase in oil, coal and natural gas prices. Even uranium prices have increased dramatically. Copper, iron, steel, and other commodities have had a huge run-up in price over the last few years. The rising prices of commodities over the last few years reflect the massive inflation in financial values. Investors trying to own commodities, from oil to gold, are trying to hold on to something that is real. This is in contrast to the huge amount of speculation going on in the financial markets, the international hedge funds operations, etc. Oil prices have gone up slightly recently, but have stayed below their peak several months ago. A mild winter weather forecast in the United States means that energy prices in general should not go up too much unless there is another major war in the Persian Gulf area. Now that the real estate bubble in many parts of the world is popping, this tendency to seek values in commodities can only intensify.

A new tendency for corn, soybean and other agricultural prices to go up has been linked to the use of these crops for processing into ethanol as a substitute for gasoline. Since September 2006, the price of corn has gone up 30 percent, despite the fact that there are ample supplies. From a supply-and-demand standpoint, corn is seen to be continuing to go up in price because of needs of corn as an animal feed and for human consumption versus its new use as a feedstock to produce ethanol for fuel. The other reason is that corn as a fuel feedstock has become so in vogue on Capitol Hill that demand is seen as going up for years to come. There are futuristic plans to supply U.S. fuel demand with blends of ethanol, which could take up to one-third or more of the corn crop. Whether these utopian forecasts ever come true is beside the point, it’s the amount of excitement that has hit the corn futures market. Corn has the additional use of being the source of corn syrup, a key sweetener of soft drinks.

Seeking Value in Commodity Speculatio / Adamheist

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