Why Are Commodity Prices Falling?

On today’s show we are looking at what is going on in global commodity markets to try and understand what it means for our economy and how it will affect the domino chain of interdependencies throughout our economy.

In the past two weeks we have seen a sharp drop in commodity prices across a wide range of commodities.

This includes oil, copper, steel, silver, cobalt, tin, nickel.

The broad interpretation is that these price drops signal the drop in future demand that will come from the current economic recession.

But we also need to look at the point of reference. These commodities are priced in US dollars. The US dollar has surged against many global currencies. The US dollar is now hovering at par against the Euro for the first time in nearly 20 years. The threat of energy insecurity in Europe is cited as the biggest factor. If Russia were to weaponize the sale of natural gas to Europe, it would negatively impact the economy in Europe in a significant way.

The Euro has fallen in value against the dollar by nearly 20% in the past year. So even if commodity prices were static against the US dollar, they appear to have gone up by 20% simply by virtue of being priced in US dollars.

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Host: Victor Menasce

email: podcast@victorjm.com