The global economy directly depends on prices of the commodities. Businesses can both be ruined and become very successful because of the rise and recession of the commodity prices. That is why the question of changing prices is very important in business and economics.
Prices of commodities can be classified as both long-term and short term. The prices of long term commodities such as crude oil, gold, silver, petroleum, energy, grains, and metals have increased a lot recently. For example the price of crude is above $80, wheat – $9, gold – $750.
The result of it is definitely the slowing of the global economy because the commodities are considered to be the raw materials for manufacturing products. According to Kowalski (2011), when the prices of commodities increase, manufacturers also increase the price of the products and services in order to cushion the rise of the raw materials prices.
While the prices of these commodities continue to rise, countries like China and India demand vast supplies as their economics continue to industrialize.
When a trader decides to venture into the market, the understanding of the market price trend is very important. According to Valdez (2010), trading review is vital to all traders since it helps them to understand the market prices when some events or situations occur and the prices of commodities go to extreme levels. The trader will then appreciate the events assured in the long-term and the prices will get to normal.
For instance, the price of crude oil is currently very high on the oil market. It is above 110$ a barrel nowadays. The war in Libya has played a significant role in this event. It contributes to the rising of prices of other commodities which depends on oil such as manufacturing and agricultural products (Wharton, 2011).
India and China will benefit much from it as they will produce more products for export. Their economies will continue to industrialize even with the high prices.
Commodity prices are increasing every day. It gives more opportunities for China traders to buy more industrial products. The strong Chinese economy means higher prices for commodities. According to statistics of Chinese economy, when the prices are leveled up, the entire economy of this country becomes stronger and vice versa.
According to China Economic Database, China has been a major driving force behind the bull market in commodities and its economy keeps growing at a high rate and demands for commodities continue to be strong. While investors are buying stocks and commodities, there is a risk in trading since they are likely to buy and keep the commodities in order to trade them later making greater profits (Clarke, 2007).
The increasing of commodity prices is the indicator of the improved economic conditions on the global market. Earlier, commodity price booms led to a much bigger supply of the commodities than the current boom. High prices lead to high demands of the commodities than the supply since the manufacturing products are constantly kept in check.
Anyway, these high prices can start falling according to the conditions of the global economics (Clarke, 2007). That is why China and India produce more goods for the global market despite the high prices on the commodity production. The commodities will be sold on the ventured market while China and India economies continue to industrialize (Smith, 1990).
It is true that the long-term price for commodities, such as petroleum, gold, and silver will continue to rise because such countries like China and India will demand vast supplies as their economics continue to industrialize. The rapid increase in commodities is the indicator of the global economic conditions development.
References
Clarke, H. (2007). Long-term trends in commodity prices. Harry Clarke. Commentary on economics, politics and other things. Web.
Kowalski, C. (2011). Commodities are in a Long-Term Bull Market. Web.
Roche, C. (2011). Commodity prices seem much too high. Pragmatic Capitalism. Web.
Smith, J. (1990). Short term variations and long term dynamics in commodity prices. Management Science. Web.
Valdez, S. (2010). An introduction to global financial markets. (6th ed). New York, NY: Palgrave Macmillan.
Wharton, D. (2011). Back to the Future: Will Rising Commodities Prices Create a New Inflation Generation. Web.