The Bull 'n Bear on the Breakup of Commodities
The commodities complex is "exploding," that is, the correlation between the different commodities is breaking down/ reverting to pre-crisis levels. There is an interesting piece highlighting this phenomonenon in today's WSJ.
The two commodities that will experience the greatest difference in fortunes during the second half of the year are gold and copper, or those are the first two that come to mind, anyway. With the European sovereign debt crisis rearing its head for the nth time (and it won't be the last, unless European politicians take a serious approach to the problem) and mounting concerns regarding U.S./ Chinese/ global growth, we can probably expect more demand for the yellow metal (gold hit a nominal high in euros yesterday, by the way.) I think the obvious catalyst for the end of the gold bubble is a U.S. interest hike. At the beginning of the year, I thought this might occur as early as the second half of 2011, but now I am starting to wonder whether we will see it in 2012.
Copper, on the other hand, is an industrial commodity, not a quasi-monetary asset. Goldman Sachs just reduced its GDP forecast for China in 2011 and 2012. China is the largest importer of copper in the world, if I recall correctly. Lower growth means lower copper prices and the decline could be brutal if the Chinese copper trick is unwound on a broad scale.
May you live in interesting times, indeed.