The bull market in commodities is now in its fifth year and has been witnessing a rally not seen in more than five decades. The price of copper quadrupled, gold more than tripled, and oil doubled over the past five years. The skyrocketing commodity prices have apparently started to challenge the laws of physics. Adding fuel to the markets' fire, fund investments in commodity indexes and other products are expected to exceed $120 bn by 2008, compared with $80 bn last year, according to estimates from Barclays. Fund managers are investing billions of dollars in commodities as a hedge against the explosive growth of the world's money supply, currency devaluations, and the negative interest rates pursued by central banks. Against this background, investors are pouring cash into commodity futures because other choices seem less attractive. Precious metals, agro-goods and oil are breaching record levels. Leading global commodity indices have delivered double-digit positive returns against negative returns generated by global equity indices.
The stupendous growth in China and other emerging nations, coupled with dwindling global supplies, has shaped a super cycle that is driving the commodity prices higher. Besides, the continuous depreciation of dollar value has also provided a perfect environment for the dollar-denominated commodities to soar higher. All of a sudden, equities have become unsafe assets in the face of credit defaults in the financial market and the looming recession in the US economy. The falling equity indices worldwide have made commodity investment more attractive than ever before. Even sovereign wealth funds and hedge funds have started shifting their investments from equities to commodities.
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