Is A Bubble Developing In Commodities? by Lloyds TSB

It may be strange to be worrying about where the next bubble may come from when we are not yet in the clear from the latest one, which is still unwinding in credit markets. But that is exactly what is causing concern amongst some commentators
currently, based on the startlingly sharp rise in a range of commodity prices in the last year or so. These increases are not just in gold or oil but also in metals and in a range of agricultural foodstuff.

Commodity prices have risen sharply…

 

It may be strange to be worrying about where the next bubble may come from when we are not yet in the clear from the latest one, which is still unwinding in credit markets. But that is exactly what is causing concern amongst some commentators
currently, based on the startlingly sharp rise in a range of commodity prices in the last year or so. These increases are not just in gold or oil but also in metals and in a range of agricultural foodstuff. How worried should we be? The headline evidence would suggest that there is certainly a lot to be concerned about.

 

…leading to worries about a bubble…

 

Oil prices have doubled, so has the price of gold, copper, wheat and a range of other commodities, all within the last 12 to 18 months. Charts a and b illustrate the scale of this rise. In fact since 2005, industrial metals prices have risen by 350%; crude oil is up nearly 400%, food prices are up by around 250%, with wheat, corn and soya prices rising by at least that rate. It is causing concern about whether price inflation will accelerate back to the sort of levels seen in the 1970s and 1980s, and about hunger and famine amongst the poor that in some places have already led to riots and
deaths. Read Full Report