Near Term Direction Commodity Prices

Last week commodity prices fell. Oil futures reached a 3 month low. Gasoline future went below $3/gallon. Gold sold for less than $800/ounce. In fact, almost all commodities are trending lower.

The question is for the near term, such as through the next few months, what is the direction of these prices. Three choices exist: higher, lower, or the same.

My belief is lower because of:

1. Increasing value of dollar which will make reduce import costs. The dollar is increasing because other global economies are slowing.
2. The growth in the countries trading in the euro went negative in the last quarter which means that these economies contracted slightly.
3. The Chinese government is slowing the economy.
4. The Chinese currency, Yuan RMB, has been steadily declining which makes Chinese made products more expensive.
5. Oil goes down because of: lower demand as economies slow, lower demand as US consumers reduce demand, and the actual cost to produce a barrel of oil has been reported to be about $50/barrel. Seeing oil below $100 seems very reachable.
6. Reducing oil cost has a synergistic effect on other commodity cost.

If money is leaving currency trading, where will it go? Time will tell us the answer. The nice thing is that the current inflation rate reported in July will be reducing as commodity price retreat.

Personally, I will be happier when gas goes back below $3/gallon. Won't that be a nice Christmas gift.