May 16, 2006


Commodity price tumble puts markets in tailspin (JOHN HEINZL, 5/16/06, Globe and Mail)

“It's beginning to look a little ugly,” said Elvis Picardo, research analyst and chief market strategist at Global Securities Corp. in Vancouver. “When sentiment shifts it happens very suddenly.”

Nowhere was the reversal more dramatic than in commodities, which plummeted amid concerns that rising interest rates could crimp global economic growth and curb demand for raw materials in countries such as the United States, China and India.

In London, gold fell 4.9 per cent for its biggest drop since 1993, while silver skidded 8 per cent. Copper, zinc and other base metals also fell sharply, as did crude oil, which slumped $2.63 (U.S.), or 3.7 per cent, to $69.41 a barrel on the New York Mercantile Exchange. The Canadian dollar shed 0.34 cents (U.S.) to 89.80 cents.

Underscoring worries about slowing economic growth, the International Energy Agency last week cut its estimate of global energy demand for the third time in four months, indicating prices are starting to cut into consumption.

Commodity prices had zoomed skyward on a combination of Asian demand, supply concerns and speculative buying by pension and hedge funds hoping to beat the returns on stocks. But the outsized gains in commodities have set off a growing chorus of warnings about an imminent correction.

“There is a danger that this is a bubble,” Donald Brydon, chairman of the London Metal Exchange, was quoted as saying in the Financial Times over the weekend. “There are a lot of new players in the market that need to be careful.”

The sooner the speculative commodity bubble is popped the sooner Ben Bernanke can start lowering rates.

Posted by Orrin Judd at May 16, 2006 9:38 AM

Well, it took long enough. I sold my (limited) investments in gold and copper about 2 years ago (after a nice run). The last several months have been froth.

But if the dollar continues to weaken, Bernanke isn't going to cut rates.

Posted by: ratbert at May 16, 2006 9:52 AM

Rat makes a good point about the dollar. Indeed, Obi wan keeps indicating he intends to continue tweaking rates upwards ... to hedge inflation. In the followup Q&A incident of a couple of weeks ago, he did some intense backpedaling on what he'd said the day prior. What do you think is going on?

Posted by: jeff at May 16, 2006 10:56 AM

Well, if history is any guide, the Fed will keep upping rates until they push us into recession -- hey, anything better than risking inflation! -- sometime in 2007.

Of course the recession will be over by early 2008, but no one will know it, b/c the Dems and their stooges in the media will be pushing it right til election day 08.

At which point the combination of dem/media b.s., and a third party run by some whackjob "conservative" upset about immigration -- David Duke is tanned, rested, and ready -- will give Hilary the Presidency.

After which "conservatives" will froth like lunatic Kos diarists for 8 years.

Shoud be fun.

Posted by: Jim in Chicago at May 16, 2006 11:15 AM

Shhh, Jim. You're giving away the game plan.

All the best,


Posted by: Brad S at May 16, 2006 11:49 AM


That's to burst the bubble so he can do the opposite.

Posted by: oj at May 16, 2006 1:22 PM