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

Gold prices are going up, and today they hit a record $1,500-per-ounce price. Image: Flickr / theredproject / CC BY-SA

Like all commodities, gold prices fluctuate. Today, after quality of United States debt was questioned by Standard and Poor’s, gold commodities hit a record high, $1,500 per ounce. This continues the upward trend in gold prices, though experts are split on the meaning of this milestone.

Spot price of gold hits record high

The price of gold has two major markers. The commodity price of gold is the general market price of purchasing shares of or stock in gold, usually known as “exchange-traded products.” It is also possible to purchase gold coins and gold bullion bars. Coins, which are more difficult to counterfeit, are usually sold at a higher price. Gold certificates are a middle ground, a promise that the gold indicated on the certificate is available and belongs to the owner. The spot price of gold is tied to the commodity price. Today’s spot price of gold hit $1,500 in U.S. dollars, an amount that gold has never hit in the past.

Worries of speculation in the gold market

Every time financial markets go through a downturn, the price of gold tends to spike. Investors often view gold as a hedge, a “safe haven” of investment. The idea is that gold will always maintain or increase in value, unlike currency. Since the value of currency of the United States was decoupled from gold, demand for gold has been going up. Gold is seen as a “hard” currency that will always maintain its value. Some financial experts are concerned that some individuals are using short-term financial solutions or installment loans as a way of buying into the gold market that may or may not be worth the investment. Speculation, over-investment and a possible bubble could mean that gold prices, like the prices of all other investments, could drop at any time.

Be wary of gold-investment advisers

Gold, like every other investment, comes with certain risks and rewards. Gold has historically been a strong investment, but dips in prices are possible with fluctuating demand, central bank policies changing and inflation levels of various currencies fluctuating. Some gold-investment advisers are pushing gold as the “only smart investment in today’s economy.” Many of these advisers are also selling gold investments. Gold can be a good investment, but as with all investment options, it should be balanced with other financial options.

Sources

Wall Street Journal
Kitco
Gold News

Gold futures hit a new record high today at over $1,400 an ounce. (Photo Credit: CC BY/Giorgio Monteforti/Flickr)

There is a definite connection between currency values and the price of precious metals, and if today’s movement on gold futures is any indication, the world is experiencing a major shift. According to Marketwatch, Gold for December delivery went up $7.20 per ounce to an all-time high of $1,405 early Monday on the Comex of the New York Mercantile Exchange. It soon peaked at a high of $1,407.20 per ounce.

Gold futures began the day on downward slope

Trading began Monday with a loss of as much as $10 from Friday’s closing price on gold futures ($1,397.70 per ounce). Not coincidentally, the currency value of the dollar rose. But dark clouds of European debt – particularly in Greece, Ireland and Portugal – massed on the horizon, giving gold prices, silver prices and even copper prices an historic lift.

The Federal Reserve’s bond buying excursion spun the market like a top

The recent move by the Federal Reserve to buy up $600 billion worth of bonds over the next eight months spiked investor interest in selling paper currency and shifting toward the precious metals end of the market. Yet currency values are not in complete free fall as yet, reports Marketwatch. The U.S. Dollar rose 0.5 percent against rival paper currencies. The euro, however, experienced a marked decline, thanks to bonds from Greece, Ireland and Portugal came under performance pressure.

Re-instituting a gold standard

World Bank President Robert Zoellick has suggested that the re-institution of the gold standard should be a topic of serious discussion at the upcoming G20 conference in Seoul, South Korea. “Employing gold as an international reference point of market expectations about inflation, deflation and future currency values” could go a long way toward establishing a practical economic yardstick, said Zoellick in a recent Financial Times op-ed piece.

James Cordier, a portfolio manager at Optionsellers.com agrees. A global gold standard could “stabilize gold and turn what is still a thin market into a more orderly one.” Not only that, but currency values would benefit, as it would be tied to something to something more tangible.

Silver and copper prices also shot up

Marketwatch reports that silver prices went up toward $27 an ounce. Meanwhile, copper prices rose to $3.96 per pound in December delivery figures.

Sources:

Marketwatch

Is it government manipulation – or luck?

Federal Reserve Chairman Ben Bernanke has been under constant fire since the beginning of the great recession. Some people say he was put into a difficult situation, but still others maintain that his performance has been worthy of scorn. Marketwatch reports that gold prices have fallen for the third straight day, while Reuters reports that the Bernanke testimony has people skittish on jobs and America’s economic recovery. Payroll loans should be expected to continue at their current rate as the economy remains uncertain.

Frank McGhee of Integrated Brokerage Services told Reuters that difficulties with the euro have shifted some of gold’s value back toward the dollar. Gold bullion, which has generally been seen as safe in tough economic times, is tending to run with riskier markets, which some consider to be a bad sign.

Recovery “not yet sustainable”

Continued low interest rates go along with this, which does little to encourage investors. Bernanke testimony included a promise to Congress that the Federal Reserve will abandon its “ultra-low monetary policy” when there is real recovery, namely by adjusting the rate for lending between banks.

Gold and currency trade are down

That’s the way it will stay until there are more obvious signs of recovery, signs that sustainable recovery is well underway. Reuters indicates that the International Monetary Fund is attempting to liquefy its gold supply, which is influencing prices and keeping traders wary. It all leaves regular people wondering where they can get a personal loan to make expenses. The Bernanke testimony doesn’t make things appear any more positive at the moment.

(Photo Credit: http://www.flickr.com/photos/gageskidmore/ / CC BY-SA 2.0)

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