Is the commodity boom over?

Gold is down $40 of its highs! Oil is below $70!! Copper is off around 5% in the last three days!!! Even sugar is down!!!! After meteoric rise over the last couple of years many commodities see their first significant downturn in a while. Just like many bubbles that came before that we saw prices reach meteoric heights in a very short time because of speculative buying. Is current situation a pause or a beginning of an end of the latest commodity cycle.

I am leaning towards the earlier. The fundamental need for natural resources of China, India and other growing economies have not changed in the last week. What we saw is hot money coming out of the market due to liqudity tightening around the world. At the same time Japanese steel producers agreed to another 19% increase in iron ore prices on top of a 70% increase last year. This means that commodities are still scarce and still needed. Industrial buyer's pattern is a much better indicator of the health of a market than momentary swings of spot prices driven by fast money looking for quick return.

This commodity cycle will end, but the reasons for it will be global economic downturn and overcapacity. I think this situation is a still couple of years away so investments in steel, oil, and mining companies are safe.....for now.

On a similar note
Russian stock market lost over 15% of its value this week. Anything that is up 200% in the last couple of years is bound to have its corrections. Some might compare this developing situation with what happened in Saudia Arabia and other middle east stock market earlier this year. Saudi market is off 50% by now from the beginning of the year but Russia will not face the same faith. The main reason for it was Saudi market P/E was close to 40 and Russia is still in mid teens. So the correction like this week is good and healthy and in no way it should stop anyone from looking at opportunities in emerging markets.