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Originally Posted by speeder
Old Khelil is 100% right this time. It has nothing to do with supply and demand. Has the S/D ratio changed 50% since one year ago?  |
Edit: Price change does not directly correlate with supply/demand changes -- if 50% more of a commodity is needed because of changes in the economy, a "50%" increase in the price of that commodity would
not be the result. Because oil may have risen in price by 50%, does not mean that there has been some equally large change in the supply or demand. In fact, with most commodities, extremely small changes in supply or demand, result in very large percentage changes in price. (This has to do with the subject of "elasticity" in the supply-demand picture.)
And things
have changed with the "supply and demand" of the fiat currencies being used to purchase oil and other commodities.
In browsing online I found this brief article:
http://www.ozcopper.com/?p=78
Quote from the article (written in March):
Quote:
Meanwhile, money is flowing like mad all over the world. Money supply is up 16% in the U.S. but it’s even more in other countries… it’s soaring 42% in Russia, 21% in India, 18% in China and so on.
And with the whole world worried about a U.S. recession, as well as the domino effects of the subprime mortgage meltdown, which has already tallied up losses of around $200 billion (so far only half of what’s expected), the money’s going to keep flowing, all in a concerted effort to avoid a recession at all costs.
You see, a recession could turn into a deflation, accompanied by massive bank failures, and that’s something no one wants. Sure, all this money is fueling inflation and the commodity boom. And yes, lower interest rates are making the U.S. dollar super unattractive and driving it to new all time record lows, but low rates will help the economy.
The bottom line is that this inflation option is a whole lot better than the deflation option, and that’s what the Fed and the world’s central banks have chosen to do. They really have no other choice.
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The rest of the article does discuss world-wide demand, and supply risks, for commodities.