Are the commodity markets in a pricing bubble? Many people's judgement tells them that they are, as they look at the short term price movements of certain commodities like gold, wheat, copper.
Granted, they might think that the weak dollar is just making the problem a little worse with a monetary inflation if they are multidisciplinary thinkers. But as you probably know by now, we think that judgement is good, as long as it is informed by solid data. Let's take a look at a few of the commodity charts. As always, you may click on any of the pictures or charts to see a larger version.
Sure looks like an impressive growth in price, and a potential bubble. How much of that might be attributed to the fact that the CRB is priced in dollars?
Here is the CRB Index deflated by Euros. That casts a little bit different light on things. It looks as though commodities are rebounding from a low period and going back to retest some prior highs. Historically, just how high WERE those highs?
Here is a long term chart of the CRB Index deflated by Euros. With this perspective it seems clear that the prior high was just a test of the upper bound of a longer term trendline that shows a gradual rise in the price of commodities that clearly is NOT a bubble. Just looking at this chart, we must conclude that the trend will continue, which implies higher priced commodities in terms of the dollar, until it is broken.
