More info on gold from Today's Wall Street Journal.
By Tim Annett
The boom in commodities prices is showing signs of subsiding
to a dull roar, but the shouting may be far from over in
economic circles, as analysts weigh the causes and effects of
higher costs for everything from copper to zinc.
The famously gloomy Morgan Stanley economist Stephen Roach
wrote in a recent note to clients that "asset bubbles have
dominated financial market experience over the past six years.
The world is now in the midst of another bubble -- this one in
commodities. It, too, will burst. The only question is when."
Mr. Roach, who says commodity prices are following an arc very
similar to the one traveled by Internet stocks during the
1990s, may have his answer soon. Though some metals managed to
post small gains in trading today, gold prices are well off
recent records, and copper prices have been coming down hard.
To be sure, economies in China and India are roaring, but
soaring growth there may not be enough to sustain current
price levels. Merrill Lynch economist David Rosenberg quipped
in a recent note that "they'd better be putting up a few
skyscrapers a day in Shanghai, because it's difficult to square
what copper has done this year" with the current slowdown in
the U.S. housing market, which has also been a well of demand
The volatile commodities landscape presents a problem for the
world's central bankers, including the Federal Reserve, which
is trying to determine whether it can apply the brakes to its
campaign of interest- rate increases. Fed officials worry that
moving too aggressively to raise borrowing costs in a bid to
stave off rising prices might choke the economy's expansion. At
the same time, they are concerned that if they stop raising
rates too soon, then inflation might run rampant, damaging the
central bank's credibility with financial markets. But the ups
and downs of the commodities markets could push when the Fed
wants to pull in its quest to balance growth and inflation. In
another note issued this morning, Mr. Roach said that policy
makers have successfully kept a cap on rising prices, "but that
was yesterday's battle." He believes the Fed must consider that
its bias toward easy credit -- its recent rate-raising
notwithstanding -- has created a cycle of asset bubbles that
could easily undermine their work on the inflation front. Of
course, things could be different this time, and the air may be
gently let out of the commodities market. But ask any investor
in the past who gathered up tulips or biotech shares or
dot-coms: bursting bubbles hurt.
Lisa, (Who says it never rains in California? It poured last night)
Topanga, CA USA