The Relationship Between Monetary Policy and Commodity Prices
Comment of the Day

January 11 2010

Commentary by David Fuller

The Relationship Between Monetary Policy and Commodity Prices

My thanks to a subscriber for this short, chart-illustrated item from Seeking Alpha

David Fuller's view The conclusions and graphics will come as no surprise to veteran subscribers. Nevertheless favourable monetary conditions, in terms of both liquidity levels and interest rate costs are only one, albeit important, part of the story.

Supply and demand - from producers, consumers and speculators is even more important. For instance, China's appetite for many commodities over the last decade has been enormous. Does anyone really think that prices for so many commodities would have spiked higher in the first half of 2008 without China's demand, on which speculators were also piggybacking? Also, the supply situation can change very rapidly in commodities, particularly in terms of temporary shortages triggered by strikes or adverse weather conditions.

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