China, Iran & Commodity Prices. Slump or Meltdown?
How’s your gold golf score William Devane?
As the news focuses entirely on Donald Trump today’s debates, there is a global commodity price collapse occurring under our feet. The fault lines can be found in China’s slowdown and Iran as it looks increasingly likely Iran will be coming on stream selling up to a million barrels of oil a day. While Iran is a less certain predicament, China appears to be heading toward a full blown massive correction that will likely spread worldwide.
Is this a market slump or a meltdown which will snowball?
The meltdown has pushed as many commodities into bear markets as there were in the month after the collapse of Lehman Brothers Holdings Inc., which spurred the worst financial crisis seven years ago since the Great Depression.
Eighteen of the 22 components in the Bloomberg Commodity Index have dropped at least 20 percent from recent closing highs, meeting the common definition of a bear market. That’s the same number as at the end of October 2008, when deepening financial turmoil sent global markets into a swoon.
A stronger U.S. dollar and China’s cooling economy are adding to pressure on raw materials. Two of the index’s top three weightings — gold and crude oil — are in bear markets. The gauge itself has bounced off 13-year lows for the past month.
Four commodities — corn, natural gas, wheat and cattle — have managed to stay out of bear markets, due to bad weather and supply issues.
Hedge funds are growing more pessimistic as the year has gone on. Money managers have slashed bets on higher commodity prices by half this year, anticipating lower oil and gold prices.