As predicted by the Forex Robot team in earlier posts, after several months of impressive gains within the commodities sector since mid-February, a significant pull-back took place over this past week. A combination of several factors were responsible for this massive correction, especially for silver prices. After months of economic expansion and consistent job growth within the United States, investors and large funds managers began pouring their money into the commodities sector as a strategy to hedge against anticipated inflation. Additionally, instability in the oil-rich Middle East and Nigeria caused many to believe that oil prices would rise indefinately.
Investor sentiment began to change rapidly when the United States unemployment rate unexpectedly rose to 9% despite solid job creation. Another factor that contributed to this sentiment was that housing prices continue to fall to levels below what they were prior to the onset of the "Great Recession" in 2008. Oil prices also fell rapidly after it was reported that there was a huge build-up of crude oil in the U.S., which surprised analysts, who anticipated a draw-down. With these bearish indicators in place, investors quickly took profit after months of commodities rallying.
Silver, which nearly reached $50 an ounce, retreated to almost $35 an ounce. Many agricultural commodities, such as corn, wheat, soybean, and sugar, also had lower prices. Gold had a modest price retreat to below $1,500. Oil prices went from nearly $113 a barrel to $97 barrel. Jim Rogers, the commodities guru, was recently interviewed on CNBC. He believes that a pull back in silver was appropriate, while he emphatically explained to the TV hosts that oil prices will continue to rise over the long-term. While he explained that consolidations often occur within the commodities market, which he believes is natural and important, oil prices will rise simply because of the world's insatiable demand for energy.
The Robot Forex team believes that the recent spike in food and energy prices will cause the recent U.S. economic recovery to sputter. However, this period of limited or minimal expansion will be short-lived, as many Americans have renewed confidence in their country's economy, especially after one of the best stock market rallies on record. Oil prices will have a temporary price decline over the next few weeks, but are expected to rise again. Goldman Sachs recently reported that even though a recent consolidation and price correction took place in the oil market, prices are forecasted to reach near-term highs by late 2011 or early 2012.