Will Commodity Markets Rebound Before the Economy?

A year ago the oil and gasoline markets were in frantic buying mode as futures investors were bidding the commodities markets to all time highs across the board. Oil futures were the ones getting the most attention because of the pain at the pumps that Americans were feeling after each and every fill up of their tank, but the other commodity futures markets were also as hot as can be. Outside of the gold and precious metals markets, all the commodities have had a rough ride in the last few months. In fact, many of them are down by more than 50%, and oil is down by more than 70% from its high set less than one year ago. Other areas that have been hit particular hard are grains and foods, such as wheat and sugar prices.

The stock market and the overall economy is certainly largely to blame for the huge losses in the commodity markets, but are there any other causes? The truth is that the commodity markets probably got ahead of themselves last year when they had such a tremendous run. Just about every single commodity possible was hitting a record high every single day and investors were acting as if it would continue on consistently in the future. When markets get into this kind of a mode, they are typically due for a pretty large snapback reversal, which is precisely what has occurred.

Why would the commodity markets be affected so much by the overall economic recession? It's simple economics, supply and demand. Last year when things were going so great it seemed as if the demand for these commodities was endless and the supply was never going to be enough, now it is completely the opposite. Demand has dropped in a huge way and the suppliers are having to cut back on how much they are producing.

Could these commodities rally before the overall economy and the stock market? The truth is these commodities are quite reliant on the overall economy, so it seems unlikely that they would be able to make any huge runs while the economy continues to languish. More likely is an option that the commodity markets would start to stabilize because investors see a long-term opportunity, but wait to make a huge run until the overall markets and the economy seem to be getting back on track. There is a good chance that many of these commodities could move to the upside in a big way when the economy gets better, but don't look for them to fight the overall direction of the economy too much.