A constant source of irritation to me is articles about base metals that fail to distinguish between physical demand and speculative demand and typically fail to mention the supply side at all. Are speculators adding liquidity to the market or are they the market? The way I see it rising prices in base metals don’t necessarily signal economic growth. You need to determine if the prices are rising because of demand from industries with an interest in the underlying commodity or from demand for futures contracts by speculators who have no intention of taking physical delivery of the commodity. My opinion of the rally in base metals since March 2009 is that physical demand has been weak, notwithstanding transient buying splurges by China in some — but not all — base metals.

Anyway I came across this interesting article by James Montier of GMO:

http://www.scribd.com/doc/32174243/JM-I-Want-to-Break-Free

The entire article is interesting but the commodities commentary begins on page 9. Note that GMO estimate that speculative money accounts for half of commodity trades.

hat tip to The Big Picture.

commodities · demand · speculators · supply

I always find Marc Faber both entertaining and informative. …but would I enjoy listening to him as much if he didn’t have that accent? Not sure. All I know is that he always reminds me of Dr Strangelove. Here is a link to a one hour long speech he recently gave at the Mises Institute titled “Mirror, Mirror on the Wall, When is the Next AIG to Fall?”

Boom · Doom · Gloom · Marc Faber · Mr Bernanke · Mr Greenspan · Mr Krugman