Commodities:
Higher prices beget lower demand, lower demand begets lower prices, lower prices beget higher demand, higher demand begets higher prices, higher prices beget lower demand... and so on...
Supply chases trends - production increases when producers can fetch a higher price... The higher supply brings prices down... Falling prices inspire lower production... The lower supply pushes prices higher.... and so on...
Then the exogenous forces...
Speculators attempt to exploit the trend and push prices using futures... Prices therefore discount some future supply/demand theory... Weather changes, shots fired, civilians demonstrate - fear over potential supply disruptions, faulty theory, speculators react, price adjusts violently...
Monetary/Fiscal Policy... Here's where things get screwy... The economy slows; demand for everything naturally wanes... Prices should therefore contract... Politicians and Fed officials fear recession, deflation, re-election/appointment prospects... Solution; create money, pump it into the economy - stem the tide (as if lower prices are a bad thing)... Circumvent nature so to speak... Short-term result; a Fed-dependent market... Long-term; the bubbles that result from synthetically stimulating sectors that lack the capacity to efficiently absorb the excess capital...
At a minimum; the pumping of new money into the system decreases the value of all circulating currency (think supply) which results in higher prices for everything... Net benefit - nada!!
The good news; more people are waking up to these facts... *China, India, Europe, etc., are at least addressing inflation in their respective economies... We'll be there before you know it (maybe)...
*Although they wouldn't need to intervene had they let the market work to begin with...
My Advice: Don
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