Analysts say the falling value of the U.S. dollar combined with tight supplies across many commodity markets has fueled the big runup. And while there's a hint of speculative froth in some cases, most commodities appear to have further room to run.
"If the dollar is falling, commodity prices have to go up just to keep relative value the same," says Robert Baker, co-manager of the Oppenheimer Commodity Strategic Total Return fund.
And from today's WSJ:
"Copper has been generally supported by the dollar's decline," said Eric Wittenauer, copper analyst with A.G. Edwards.
"The weakening dollar is causing all of the commodities -- not just the metals -- to reprice themselves," said Ralph Preston, senior market analyst with Heritage West Financial.
First, here is a chart of the dollar, which has been falling for a year and a half.
Notice that other commodity prices have already increased a great deal across the board. And most of these are priced in dollars. As the dollar drops, expect these commodities in increase in value.
Precious Metals:
Livestock
Industrial Metals
Energy
Agricultural Prices
The rising prices also have hit the stocks of companies that rely on commodities, especially in the food industry. ConAgra Foods (CAG), General Mills (GIS), and Del Monte (DLM) have all sold off in mid-September as executives reported no end in sight to rising costs. ConAgra Chief Executive Gary Rodkin told analysts on Sept. 20 that inflation for some of his company's most important ingredients was "through the roof." "We are witnessing some of the worst commodity inflation in many, many years," Heinz (HNZ) Chief Financial Officer Arthur Winkleblack said after his company's most recent quarterly results.
Bernanke has decided the dollar can be sacrificed. At least for now. And it's going to give him his worst nightmare -- inflation (which the Fed was really worried about until a month ago).
