In a quarter in which GDP shrank by 5.7% and the Fed cut the overnight rate almost to zero, commodity prices spiked.
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4 Responses
Because because people fear inflation of the dollar. When the dollar is inflated commodities are a safer store of value.
Spending as much money as Obama is spending and cutting interest rates as you say, are both pretty inflationary actions.
Also I don’t think the economy shrank 5.7% in a quarter. That would be beyond catastrophic. That might be the pace we’re on, but even then that would be extremely bad for a year. Hopefully that’s not the case.
Posted on June 6th, 2010 at 8:24 pm
Inflation — diminished purchasing power of the dollar.
When you print dollars against a GROWING debt, the value of the dollar drops.
Crude is purchased in U.S. dollars as are many commodities.
Posted on June 6th, 2010 at 8:51 pm
1. USA is not the only economy on the planet. While American economy shrinks by 5.7%, Chinese economy grows at 6%.
2. Commodity prices are also affected by the weakness of US dollar, caused by spending out of control. The bubble is not in commodities, the bubble is in inevitable collapse of US dollar and Federal default on $10 trillion debt.
Posted on June 6th, 2010 at 9:45 pm
Investing in commodities is done by investors as a hedge when they are worried about inflation.
Personally, I regard commodities as too risky and volatile for my tastes and am instead investing in the stocks of companies that produce commodities (agribusinesses, mines, etc.).
Posted on June 6th, 2010 at 10:15 pm
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