When commodities like silver, copper and oil slipped last week after record surges, many investors panicked and thought the commodities bubble had finally popped.
The Standard & Poor's GSCI Index that follows 24 raw materials fell 11.4% in five days, the most since December 2008. Silver plunged 30% and oil traded down to $94.63 on Friday.
Investors who had piled money in precious metals and raw materials feared their safe haven investments had reached a bull-market peak. Some said the commodities bubble had burst and the great rally was over.
But other analysts said the drop was panic-driven profit-taking by investors responding to commodities price dips early in the week. Higher margin requirements for silvers futures trading, a rising U.S. dollar, and mixed economic data drove some investors out of the markets. The fearful quickly followed suit.
This week, the same commodities have rallied and many analysts have reiterated their bullish outlook on the sector because the fundamentals for a long-term commodities bull market still exist.
They say global demand for metals and raw materials will continue to rise, driven by emerging economies like China and India. Energy demand will also remain high as the world continues using four-times as much oil as it's discovering.
Dr. Kent Moors, Money Morning contributing writer and editor of The Oil & Energy Investor, said last week's oil price slide does not mean the market environment is any different than before.
"This is the really important point: market dynamics have not changed at all; neither has trajectory or forward trends," said Moors. "The price of crude oil will still be increasing. A $150-a-barrel price may be delayed for a bit because of the 'correction,' but nothing has changed."
And now that some of the "nervous money" is out of the markets, hedge funds and institutional traders with deep pockets will fuel a commodities price rally.
Many investors have written to Money Morning asking what they should do with this recent volatility.
"If you're already exposed to commodities, don't sweat it, just mind your trailing stops," said Money Morning Contributing Editor Peter Krauth. "If you're not yet invested, look for some further weakness and then take a position. The bull run is likely to last at least a decade still."
Despite some market bears that think speculators have pushed commodities prices so high they no longer accurately reflect supply and demand, many analysts tell investors to sit tight.
"Commodities prices will be back," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "In fact, 12 months to 24 months from now, gold, silver and other commodities will be trading at higher prices than they were just a few weeks ago – when they were trading at record levels."
This brings us to next week's Money Morning "Question of the Week": Do you agree with the bullish long-term commodities outlook? Did last week's slide prompt you to get out of the commodities markets, or do you see this price drop as a buying opportunity? What are your concerns, if any, over commodities maintaining their gains?
We reserve the right to edit responses for length, grammar and clarity.
Thanks to everyone who took the time to participate – via e-mail or by posting their comments directly on the Money Morning Web site.]
News and Related Story Links:
- Money Morning:
The Next Commodities Bubble … It's Coming Sooner Than You Think
- Money Morning:
The Silver Bull: Despite This Week's Sell-Off, We See Higher Prices Ahead
- Money Morning News Archive:
Question of the Week Feature