what's up or why is it down?

Question

the last few day's oil and metals have been way down is a good sign or a bad sign? I keep up with the oil mkt. and some what understand why it's down, but the other commodities what's with them?

Answer 1

Commodity prices are affected by two main factors. One is supply and demand. The other is investor sentiment.

As the world economy expands, particularly in India and China, demand for oil and metals is in a long-term growth trend. Because it takes many years to develop new sources of these commodities, it will very likely be many years before supply catches up with demand, or replacements are found. Meanwhile, we can expect a boom in all these "hard" commodities for at least another 10 years.

If you invest in the stocks of companies that produce these commodities it is good news. If you have or own stock in the manufacturing sector, it is bad news, as your costs will continue to escalate over time.

The sentiment factor is what drives the prices of oil and metals in the short term. When the prices go up, investors get greedy and keep buying until the commodities get oversold. When prices go down, investors get fearful and sell until the prices are very cheap. The key is keeping a lid on your emotions so you can "buy low and sell high."

I refer you to the website below, which has a free weekly article and an extensive archive of other articles, on commodity stocks. The article are long and a little technical, but very informative. I am not affiliated with this website but I do subscribe to the author's paid newsletter.

Best of success.

Answer 2

Precious metals are a loon anyway - they only have value if people are willing to pay for them. Metals are truly only worth pennies per pound, but because people want them for jewelry the price goes up. Dont bother with that market or with diamonds.

Oil futures is going down because there is a glut of oil in the market and the Alaskan Pipeline problems will be fixed soon. This is overall a good thing because that means the general demand for oil during the winter season will be strong and there will not be any shortages, so the economy should not suffer unduly during the winter months.