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.

Sources

Sydney Morning Herald
Christian Science Monitor
Inflation Data

The OECD is a quiet little organization of 31 countries that wields surprising power. Image from Flickr.

The OECD, or Organization for Economic Cooperation and Development, isn’t a group Americans usually hear much about. The OECD, though, is an important player in international economic and political policy. The OECD does several things including forecast growth, suggest interest rates and provide development assistance to member and non-member countries.

OECD tackles a wide range of issues

The OECD is an organization with several committees that focus on a wide variety of world issues. There are 200 committees, working groups and groups of experts. There are also nine “special bodies” within the OECD. These special bodies include the International Energy Agency and Nuclear Energy Agency as well as a special body designed to provide semi-unsecured loans to African countries.

History of the OECD

The OECD was founded in 1961 as a successor to the OEEC — Organization for European Economic Cooperation. The OEEC had been created as a framework to administer the Marshall Plan for re-constructing Europe after World War II. Since 1961, the OECD has been enlarged and reformed a few times. Currently, the OECD has 31 member states. The OECD describes itself as “a forum of countries committed to democracy and the market economy.” The OECD operates mostly with “soft law” recommendations and suggestions, though occasionally OECD recommendations are rolled into binding international treaties.

OECD Economic Outlook

Published twice a year, the OECD Economic Outlook is one of the most closely-watched reports of the organization. The most recently published OECD Economic Outlook report projected a rise in combined GDP of the 31 member countries for 2010 and 2011. For 2010, the European area is expected to grow about 1.2 percent, Japan by 3 percent and the U.S. by 3.2 percent. The report, however, is not entirely rosy. The OECD report warns of a boom-and-bust scenario that could be spurred on by inflation and economic overheating. Even with these concerns, the OECD report is an improvement compared to the November 2009 Economic Outlook report.

The bear market buzz has been getting louder as recent events scare investors, but while some analysts see a crash, others see a correction. Flickr photo.

Talk of a bear market (depressed stock market) has been circulating for most of 2010. But intense stock market volatility throughout May isn’t causing analysts to say the sky is falling yet. Some say the bear market signals aren’t a coming stock market crash, but merely stock market correction 2010. Others say the market has bottomed out already and can’t get any worse. One thing everyone seems to agree on is that no one really knows whether the bull market that began in March 2009 is about to end.

New bear market?

The bear market buzz began as early as January this year when marketwatch.com reported on the Elliott Wave Financial Forecast. The Elliott Wave, which successfully called the 2008 stock market crash and the 2009 stock market rebound, said a bear market would return in full force in 2010. It compared the situation to a brief stock market bounce after the initial stock market crash in 1929 and predicted a similar collapse. Other investment gurus, like Richard Russell, author of the Dow Theory Letter, have also predicted a stock market crash and urge clients to get liquid for quick cash. As the market tanks and rebounds depending on the news of the hour, that hasn’t been a consistently profitable position.

Stock market correction 2010

The bear market buzz is easy to understand, considering the confluence of recent events such as the Flash Crash, European debt crisis, the financial reform bill and the oil spill in the Gulf of Mexico. Investors, a skittish breed in the best of times, are lacking confidence now. But Anthony Mirhaydari, reporting on MSN, said a new bear market isn’t just around the corner. Mirhydari said long-term breadth, earnings, global economic growth and interest rates all suggest that higher highs are ahead for stocks. Also, there is historical precedent for a correction of the magnitude that occurred in May, as part of a long-term bull market.

Stock market volatility an overreaction?

Recent events like the May 6 Flash Crash have stoked a high fear index in the stock market. And the European debt crisis has been a wake up call for investors. But the new bear market buzz is overblown said Phil Dow, director of equity strategy RBC Capital Markets in Minneapolis, in an interview with CNNMoney.com. Some hard hit stocks have been oversold as investors turned chicken. May’s stampede into U.S. Treasuries is taken as a clear sign that investors overreacted to the European debt crisis. Dow told CNNMoney.com that energy, tech and health care stocks could be due for a comeback once investors realize that new bear market fears may just be stock market correction 2010.

Nimble traders thrive on volatility

It’s normal to expect some sort of a bear market given the duration of the present bull market, according to tradingmarkets.com. A 5 percent to 10 percent correction in the S&P 500 is normal, and when it happens it’s a good thing, helping to restore the market back to health. Also, the best trading opportunities, both long and short, often arise during market corrections. And nimble investors could find many opportunities to make money as volatility is expected to increase further before it subsides.