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Speculation, manipulation drive commodity prices |
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y Nandita Sen
Gold and crude oil are the most precious commodities that investors have been banking on in the last few months. But all of a sudden, the big plunge in gold and crude oil prices have made investors panicky, and speculators who play in the commodities market are getting out, and trying to put their money elsewhere.
So what is wrong with commodities sector? Is the boom cycle in commodities over? Or was it a hype that led to a boom in gold and crude prices two months back.
If we analyse how crude prices have behaved in the last few months, it is crystal clear that it is not fundamentals that have driven up the crude oil market, but the ‘hallow words of wisdom’ from commentators and analysts that drove up the prices.
When oil prices touched $147 per barrel two months back, reputed global analysts predicted that crude would skyrocket to $200 soon. Alas, crude oil prices have fallen since then, now hovering around $100, exactly half the prices that these analysts had forecast.
Who is wrong? The analysts, or the crude oil market? I think fundamentally commodities market remains robust. But it is the speculators and analysts who are playing in the market to drive up and pull down prices as per the aspirations of manipulators and market players.
Proof of it is very clear. Two months back, when crude oil prices went up, everyone was saying that developing countries like India and China are consuming so much oil that there is a real shortage of the commodity. But now that crude oil prices have crashed, aren’t people in countries like India and China filling up their cars with petrol and diesel?
It was not rising demand and falling supply that drove the prices up. Because, OPEC said this week that it is going to cut crude oil production, because there is excess oil in the market. Thus, the theory of supply-demand-driving up oil prices is a clever ploy from speculators and manipulators.
I feel crude oil prices would remain below $100 for the time being for months now, thanks to the economic slowdown that several countries are facing across the world.
Similarly, gold prices would continue to fall and would stand below $700 because people in countries like India—the biggest consumer of gold in the world—will not buy gold in place of rice and wheat—the daily essentials to survive.
Gold and crude oil are good commodities to invest at reasonable prices. When they go up to unreasonable levels, be assured that it is not realistic supply and demand, but speculation and manipulation that drive up their prices.
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