Plunging commodity prices leaving investors jittery

The price of silver has risen to historic heights and deflated, all within a week. Image: Flickr / sirqitous / CC-BY

In the last few days, prices on of some of the most important commodities have plunged. The effect this plunge may have on some prices may not be immediately noticeable, but it will affect most consumers.

Precipitous drop in commodity prices

In the last seven days, prices of several commodity items have dropped by huge amounts. Silver, gold, coffee, oil, gasoline and copper have all dropped by 5 percent or more. Silver is down by more than 27 percent over its high last week. On Thursday, May 5, oil fell to 13 percent below its May 2 high price. In short, almost every major commodity has fallen. Some blame this fall on dropping demand, others on reports that some very wealthy investors were making huge profits off gold and silver investments.

The effect of commodity prices

Commodity prices do have an effect on the prices everyday consumers pay. This is most easily seen in the pairing of oil and gas prices. Gasoline tends to spike in price a few months after oil prices spike; the delay is because of the time it takes to refine oil into gasoline. For most commodities, products made with those commodities increase in price when the base price increases. When the price of a commodity drops, however, the processed products usually do not also drop in price. For consumers, this means that the price of coffee and silver products will not likely drop, but those prices will not increase nearly as quickly.

Speculation causing price spikes

Commodities are usually considered a safe haven for investors who shy away from the volatility of the securities market. In the last few months, precious metals and commodity prices have been spiking as investors look for a safe place to put money. Gold recently reached a historic high, and silver has been following a similar trajectory. This has caused many investors to buy into the market, expecting that the price would continue to move up, a classic action that creates a bubble. This bubble in prices seems to be deflating, creating a bear market situation.