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GoldMoney, a Jersey-based online metals trading platform. “The price of oil goes up in terms of dollar value because the currency’s getting weaker.” UK consumers know how that feels. Back


in 2008, even when the wholesale oil price fell to $30 a barrel, petrol kept getting more expensive. The Petrol Retailers’ Association pinned the blame on the weak pound. As oil is traded in US dollars, and the pound had fallen against the dollar, British pumps remained expensive. A weak dollar also makes such commodities cheaper to pick up in countries like China, whose currencies remain buoyant. And when it costs less, people buy up more of it. Add in the fact that commodities often come from high-risk areas – coffee from the Ivory Coast, oil from Iran, Iraq and Libya, crops from the Congo – and it quickly becomes apparent that the price problem extends far beyond the actions of a few hedge funds. But amidst all the doom and gloom, there


is a potential silver lining. With the financial crisis exposing the weakness of paper assets,


Numerous studies have failed to find any link between price fluctuations and commodity derivatives trading


commodities are becoming an increasingly tempting option for private investors. Yes, it takes some bravery (in 2008, speculators thought oil was going to hit $200, then it dropped to $30), but commodities look unstoppable in the long term. The price of gold has gone up nine years in a row, and is now soaring at a record rate. Masters is predicting a couple of “spectacular years” at Global Advisors. “It all adds up to an explosive environment,” he says. “People are realising bit by bit that we’ve painted ourselves into a corner with these commodities. Investors used to want Calvin Klein stock, say, but these companies’ costs are soaring and they can’t put the price up because consumers fear for their jobs. So such stock is becoming less appealing, and


people are heading towards a commodities allocation in their portfolio.” Crucially, there’s no sign of these conditions changing. The global population is expected to grow to nine billion by 2050 – food production will have to increase by 70 per cent to meet those needs. Meanwhile the ongoing trade imbalance between Asia and the West will keep the dollar weak, which will in turn drive commodity prices even higher. We’re trapped in a vicious circle: soaring food and energy prices fuel unrest in the developing world, which drives commodity prices higher still. It seems we’re a long way from getting the basics right. n


DAVE WALLER is a freelance business journalist


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April/May 2011 businesslife.co 25


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