Commodity prices will rise again soon

The G-20 meeting in Brazil over the weekend has unwittingly set the foundations for the devaluation of cash, rise of commodity stocks and the turn of the market worldwide.

It does not pay off any more to hoard cash in savings accounts soon paying little more than 1 to 2 per cent. Money has to be diverted to more profitable investments and, in the middle of this development, the turn of the market is in sight.

Among other recommendations, the G-20 meeting, while admiring those Governments which have already taken or going to take bold action, advises Governments to cut interest rates further and to spend. This resonates with President-Elect Obama's plans and his ambitious infrastructure reconstruction programme and China's weekend announcement of a nearly $600 billion investment project for rebuilding houses destroyed in the summer earthquake and still more infrastructure projects: railroads, airports, subways and bridges.

Though in doing so China may wish to benefit from current relatively lower commodity prices, such projects will inevitably lead to revaluation of commodities.

The recent decline of commodities is going to be a short-term story as the same recession that caused the fear of declining construction and reduced use of steel and copper is going to increase the use of these metals.

This could be to colossal proportions through policy developments as more Governments in advanced economies as well as emerging ones start borrowing at low interest rates for a number of projects including re-building railways, roads, bridges and airports in order to keep their populations employed.


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