Commodity Prices Going Nuts

The prices of commodities, such as oil, are greatly impacted by the international economy, and thus the forex market has an indirect bearing upon commodities and vice versa. When major economies are struggling to post profits, the prices of commodities usually tumble. Oil is a perfect example of this. The U.S.’s economy has decreased recently, especially as recent job reports have shown an increase in unemployment. This in turn has led to a drop in the price of oil. As the U.S. is one of the top purchasers of oil, the concern for where oil prices are headed has emerged. With recent events in mind, the price of oil has dropped about 20 points since this information was released. The global economy, especially the U.S. dollar, has risen in value in respect to this commodity.

Another impact that the global economy has on commodities is when national currency policies are tightened. Take China, for example. The Chinese have increased domestic interest rates as a result of the downturn that the global economy is experiencing. Increased rates lead to less discretionary spending, and in all probability, to less oil consumption. In other words, the less money that they have to spend total, the less they spend on oil.

Margin increases also lead to less speculative buying. Fewer people are trading oil in the day trading world because of the margin increases, thus creating less demand for oil and in turn, making lower prices a necessity in order to try and gain some more demand for the commodity.

It’s a tangled web, but the international economy and the international trading of currency both have indirect influence over how widely traded commodities perform.

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