As the stock and bond markets continue to take a beating, institutions, individuals and hedge funds have begun pumping dollars into commodity mutual funds and other investment vehicles based on commodities.
Commodities are often viewed as a hedge against inflation, writes MoneyZine.com, meaning the prices of commodities tend to rise in step with inflation. This movement trends to run counter to stock prices which is an attribute that makes commodity mutual funds so attractive to many investors.
Prices on commodities have soared, and many experts are worried that the bubble could burst soon, sending prices tumbling back down.
"As an economist it's hard for me to sit here and look at corn and bean and wheat prices and explain it with fundamentals," Dan Basse, president of AgResource, an agriculture market-research company in Chicago, told The Wall Street Journal Asia. "The market would suggest we're extremely overpriced," he says.
Oil prices have reached an all-time high of about $104 a barrel after rising 12% in February. Natural gas prices are up 25%, coal is up 53% and wheat is up 28%.
There is a real danger in over-investing, Basse said, noting that commodity index funds hold contracts for approximately one billion bushels of soft red winter wheat, but the U.S. will only produce about half that this year.
"The grain markets are not used to the kind of levels of investment money that are coming in, whether it's from index funds or hedge funds," said Joseph Victor, vice president of market research at Illinois-based commodities research firm Allendale Inc.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.