By Ceri Jones
Money Observer
The commodities supercycle of 2000-2008, which produced roughly 20 per cent compound annual returns, was driven by scarcity of supply to meet the demands of emerging nations — notably China. Investment in the mining and extraction industries has now caught up with demand, ironically at a time when the latter is levelling out.
Western markets such as the US and UK are recovering, but they are less commodity-intensive than emerging markets, where the construction of infrastructure has been fast and furious. As a result, prices of base metals such as copper and aluminium have moved sharply lower this year since China’s growth stumbled, and only oil, which is primarily influenced by the geopolitical backdrop, has risen.
One of the worst-hit commodities has been gold, which has been plunging inversely to optimism in the US economy, falling from record highs of over $1,900 (£1,175) an ounce in August 2011 to below $1,260. Silver has followed with marked volatility, fluctuating by 20-30 per cent for every 10 per cent in gold’s movement and sinking to around $20.