"One cannot exclude that a speculative factor could take over
and kick the commodity prices into overdrive"
- Gabriel Talmain
Despite the gloomy forecasts of a new global recession, the commodity markets are not showing the patterns of the pre-crisis sell-off in 2008. For instance, Brent oil and gold even though down from their 2011 peaks, don't witness panic behaviour of market participants so far. In order to find out the expert's opinion on the possible drivers of the current commodity markets and how they are different from 2008, Dukascopy has interviewed Gabriel Talmain, Professor of Economics at University of Glasgow.
The 2008 episode has all the hallmarks of a speculative bubble, with a steady rise in prices morphing into an
accelerating price increase. As we well know, this is not the only market to do so. We still have markets displaying this pattern, just looking at the gold rush and its crash in September, but the recent path of the Oil price certainly does not display the same pattern. Three factors seem at work:
1 - inflationary pressure which would account for some fraction of the rise,
2 - flight to safety, which could initiate a bubble but does not seem to have done so at present,
3 - a secular trend towards an increasing demand for oil and a peak in world supply, this could also lead to an
element of speculation.
The current recessionary situation works against these three effects, but it is only a transitory factor whereas at
least the 1st and 3rd effects are here to stay, at least for awhile.
In conclusion, there are certainly fundamental factors that can justify some of the price hikes we have recently
seen. One cannot exclude that a speculative factor could take over and kick the commodity prices into overdrive, with an inevitable partial collapse in the end, but the situation does not seem to be there yet