Price Bubbles Always Burst: Commodities Head to the Downside

Commodities, as measured by the Reuters/Jefferies CRB Index of 19 commodities, set an all-time high in July 2008. Since then, the index has fallen around 15 percent. The chart below shows the two-stage runup that began in early 2002. The second stage, which is nearly vertical, began in August 2007 and is unsustainable.

The current daily price chart shows the index trading to the downside below its 50-day moving average.

Commodities may be on the upside for the long term, but they are extremely volatile, and a slowdown in global demand would cause a sharp, prolonged downturn in prices.

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Posted August 7, 2008.