Commodities are booming as recession-wary investors seek returns outside of traditional asset classes. Supply constraints, emerging-market demand and pure speculation have all bid up prices, with records and 'psychological barriers' being broken almost weekly.
Oil
Oil has surged to new all-time highs – close to $110 a barrel – boosted by the announcement from western countries' energy watchdog the International Energy Agency that oil demand would be robust in 2008.
The IEA said that global oil demand is expected to grow by 1.7 million barrels a day, up from 0.9 million b/d in 2007, with demand hitting an average 87.5 million b/d. As a result, futures prices for as far as February 2009 have traded over $100 a barrel, with forecasters warning there is little sign of relief from high oil prices in the short term.
Wheat
Wheat is riding high as stock shortages continue to push prices up.
In late February wheat hit a record $13.495 a bushel in Chicago on the back of speculation that farmers will not meet global demand this year, with bread makers and other consumers competing for shrinking supplies.
More recently, the US cut its forecast for domestic stockpiles by 11 per cent due to increasing demand and over the last year wheat futures have doubled as adverse weather conditions have battered crops around the world.
Gold
Wary of the constant threat of a US recession on the horizon, investors have been flocking to gold as it hits repeated highs and creeps closer to $1,000 an ounce.
The weaker US dollar has increased demand for bullion as investors seek a refuge in commodities – gold is cheaper for holders of other currencies when the dollar falls. Of course, if the dollar strengthens it makes gold costlier for those holding other currencies and can often lower demand.
Coffee
Expectations of supply shortfalls are also affecting the price of coffee, which surged to its highest level in 12 years in February on the back of concerns over stock levels.
The International Coffee Organisation has anticipated global consumption of around 123 million bags of coffee in the year to October 2009, although output is only expected to be between 123 million and 126 million bags, pushing prices sky high.
Can the commodities boom survive a potential US recession - or is this a bubble set to burst?
Spread betting on Commodities
IG Index allows you to go long or short of a wide range of Commodities, from foodstuffs such as sugar, coffee, wheat and soyabeans to precious and other metals including gold, copper, palladium and platinum. Energy commodities, from crude oil to heating oil and natural gas, are also available to trade.
You can follow your views on the market regardless of its direction: if you think the boom will continue on a certain commodity you can 'buy', while if you think there might be a trough in the market you can 'sell' to capitalise.
And you can also take advantage of our Guaranteed Stops, which allow you to protect yourself against a sudden change in the market, should it move against you - particularly useful when trading volatile commodity markets.
Updated: 12/03/08
The above comments do not constitute investment advice and IG Index accepts no responsibility for any use that may be made of them.