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Video: Commodity Cycles

August 14, 2009 at 10:24 by Andriy Moraru

Even if you are new to commodity trading, you’ve probably already heard about the commodity market cycles that imply that the prices for all commodities are fluctuating with dependence on the supply/demand ration, which changes according to the fundamental factors. This video explains what the commodity cycle is and why does it “happen”. The full cycle can be broken down into 8 steps:

  1. Commodity supply surplus pushes prices down.
  2. Lower prices mean lower profits and thus investments into commodity production decrease.
  3. Commodity supply grows slower than the overall economic growth.
  4. Prices begin to rise as the demand outperforms supply.
  5. Higher prices allow more investments into commodity production.
  6. Prices rise until investment increase supply to the demand level.
  7. Supply meets demand and the prices stop growing.
  8. Commodity supply goes above demand and the cycle starts over.

The length of the cycles varies from time to time. It’s hard to tell in which part of the cycle we currently live, but it looks like that we just entered the first step after the global financial crisis.

Created by Jeffrey Kramer (economic analysts) for Economic Outlook.

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