Bull markets in commodities should not distract us from the fact that spikes in prices are followed by collapsing prices. This observation has nothing to do with being a “commodity bull” or a “commodity bear” but with historical facts.
When commodity prices are low, no new production capacities are built and eventually shortages drive prices higher. When commodity prices are high, new production capacities come on stream and alternate ways of production are invented which subsequently drive down prices. Now for some commodities, the supply response is relatively short. If there is a soybean shortage which causes prices to increase, farmers can respond within one or two planting season. That is why agricultural commodities fluctuate widely within brief periods.
The (is) fact that whereas for agricultural prices the supply response is relatively short, for industrial commodities it is very long. Say there is a shortage of copper! It will take a very long time (12 – 20 years) until the mining industry will open new mines. Therefore, the industrial commodity cycle will tend to last longer than the agricultural cycle. However I would like to emphasize that at some point, prices for industrial commodities will also collapse and this irrespective of how much money our friends at central banks around the world will print. - in GBD Report, Feb 2011
Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.
