Are We in a Commodity Supercycle or Should You Be Getting Nervous?

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...massive changes in global demand by China and India are leading analysts to believe that the current spike in commodity prices will not be a temporary phenomenon.

The prices of commodities are growing at their strongest pace since the late 1970s. Oil is up more than 450% since November 2001, gold close to 300%. Even the Economist Commodity Index (which excludes oil and precious metals like gold) is up almost 150%. Are these prices likely to come tumbling down any time soon?...

The phenomenon of prices reverting back to their mean is so common that when it doesn't happen people take notice. Economists refer to prices staying above their long-term means for a sustained period as ‘supercycles' and some even argue that there have only been two supercycles over the past 150 years. Both occurred when there were major changes to the global economy. We might be in the third now.

China and India are transforming the global economy. According to the IMF, almost half of global growth in 2007 will come from these two economies. And much of the demand for raw materials is coming from China. Chinese demand for copper, nickel, steel and tin is more than half the global demand. These massive changes in global demand are leading analysts to believe that the current spike in commodity prices will not be a temporary phenomenon.

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