London, September 2010

Impact on current commodity markets

Throughout the first half of 2010, news of the various European nations experiencing debt crisis caused global speculators to flee to the safety and stability of the US dollar, as well as US Treasury investments and US stocks. We have referred to the first half of 2010 as the “flight to quality rally” in terms of the dollar’s value. From it’s November 26th, 2009 low of 74.17 to its June 7th, 2010 high of 88.70, the US$ Index rose 19.5%.

As we approach 2011, it will not surprise us to see commodities trump all other asset classes as investors and speculators move to allocate larger percentages of their portfolios to risk trades. In line with that, basic world demand for commodities continues to increase, with China the source of fastest-growing demand.

By Paul Kavanaugh

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