Commodity boom – the party ended

The week ended with FED cutting target lending rate. As a result, US dollar gain against Euro dollar or Japanese Yen. The rate cut plus early measure to promote lending has resulted in dollar's strength. Currently, the key problems are credit crunch, write down and economy slowdown/recession. The main aim now is to restore market confidence.

On the other hand, commodities suffered big fall. All commodities – Oil, Gold, Soft commodities, all coming down. As gold is inversely correlated to US dollar, dollar advanced means gold falling. Generally, the falling commodities price could be due to

1.Hedge fund selling. Prudent to take profit as price is at historical high and pay back the borrowed money. The profit could be used to compensate other investment loss.
2.Global demand would soften due to the current crisis.

The recent equity market condition forced the speculators to switch attention to commodities. The higher commodities price, the higher chance of us heading into recession. As the outlook uncertainty increases, these people also start to unwind the position. I would think the recent high price is mainly due to speculation, than the real demand. Let's pray the price to drop further. Most people would suffer from this great run, except the speculators and farmer.

Although the portfolio strategist argued that commodity investment should/could be part of
a diversified investment portfolio. But, any party would come to an end. Buying at or near peak is not a wise thing to do. If it come down to a more logical level, might want to allocate some money in commodities sector.

At current time, maybe the bond should do well. As US bond is the safe heaven during uncertain time and the interest rate is going to come down.