Commodities Boom Just Keeps Going and Going...

What happened to the commodities bust?

Matt Rourke / AP

After weeks of dire predictions that the boom in commodities prices was about to implode, gold, oil and grain prices are showing new signs of life.

Oil particularly has been exploring new highs each day. Gold and other precious metals cooled off in March but are now rallying and within range of the record highs set earlier this year. And grains -- especially corn -- are on another run that is being helped in part by a wet spring in the heartland growing areas.

It all adds up to a strong commodities run that analysts say is not a bubble but rather a move fortified not merely by speculators and inflation-hedgers but by some strong fundamentals.

"We will have zigs and zags and some of them could take your breath away," said Sean Brodrick, natural resource analyst for Weiss Research. "But, yes, I think we are looking at a sustainable summer rally that's already starting."

Just a few weeks ago, commodities players were anticipating that the stabilizing of the US dollar would cool off the hedging against the greenback's weakness and looming inflation, resulting in the end of the phenomenal run for commodities in 2008. Investors favor dollar-traded commodities when the US currency falls.

Continued demand for leading commodities, coupled with speculation among investors still wary of the stock market, will only push those goods higher. The only thing that could change it is the Federal Reserve changing courses and backing up the dollar, but that appears unlikely until the economy heats up.

Oil on a Slick Path Higher

OPEC's defense of higher prices and demand heading into the summer driving season make US light, sweet crude

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[US@CL.1  Loading...      ()   ] a strong play. Broderick points out further that gasoline prices, despite how much misery they've inflicted on American consumers, have risen at a much slower pace than crude.

As demand increases during the summer driving season, OPEC is likely to cut production or at least hold it level as a catalyst to raise prices to what some feel will approach $4 a gallon at the pump.

"This is a situation that if it continues for quite some time, we could see tighter and tighter gasoline, which will push gasoline prices higher and push oil prices higher," Broderick says. "OPEC is in no hurry to increase production."

Broderick puts the price of oil at up to $150 a barrel by year's end, though many analysts are a bit more conservative.

Oil investor T. Boone Pickens told reporters that oil is likely headed for $125 a barrel soon as he too points to a glut in production keeping prices high. Pickens this year got burned short-selling oil through his hedge fund BP Capital.

"The position is long, not short," Pickens told reporters, according to Reuters. "I covered the short position -- it was a mistake on my part."

Natural gas also is likely to hold its price. Anadarko Petroleum's

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[APC  Loading...      ()   ] Independence Trail Export Pipeline from the Gulf of Mexico is offline for repairs that could last four weeks, yet the company has promised to fulfill its contracts. The company will be forced to buy natural gas from the futures market to meet that goal, which will be supportive of the price.