Not so, say commodities experts. Despite the recent pullback, long-range global demand and strong fundamentals are expected to keep commodity prices aloft.
True to form, many commodities, including oil and gold, posted solid gains Friday after being battered for most of the week.
"We are seeing some pullback," says Weiss Research commodities analyst Sean Broderick. "But nothing goes up in a straight line. The long-term fundamentals of the dollar are still pretty bearish. I expect a short but sharp rally in the US dollar. I expect it to run out of steam and then I expect the commodities trade to continue."
Though most agree there is a pullback, expectations differ on how long it will last. A weak US currency helps dollar-denominated commodities, though growing international demand also is boosting prices. So with the dollar seemingly headed toward a period of strength, a lot will demand on how much demand there is for a particular commodity.
On Friday, for instance, oil prices rose despite a stronger dollar. The reason: positive US economic reports fueled speculation that demand will remain strong.
Analysts believe grains like corn and soybeans will trend higher while wheat is likely to slip. Silver and copper are seen as solid plays among the metals, while gold is likely to trade in a range. And oil is expected to slip some before renewing gains later in the year.
Broderick thinks continued economic weakness will push the dollar back down, making the commodity pullback brief. Jeffrey Christian, an analyst at CPM Group, sees the pullback lasting through the second and third quarters. Quincy Krosby, chief investment strategist at The Hartford, believes the decline will last as long as the dollar rebound, which was sparked this week by expectations the Federal Reserve has stopped cutting interest rates.
"We really don't know," admits Darrin Newsom, grains analyst at DTN. "The larger picture of the dollar index looks like it's stabilizing. This is starting to draw some of the money back. Is it all going to rush out of commodities at one time? I don't think so. But I think it's already beginning to draw out of commodities."
Global demand from developing nations will at the very least keep a floor beneath most commodities. Governments in Middle Eastern countries are building entire cities. China wants to become a world player in terms of commerce as well. Brazil and India are continuing their movement toward economies that embrace free-market principles more broadly and are demanding oil, wheat, copper and other supplies to forge ahead.
All of which makes for a healthy commodities market, if not for the short term than at least over the long haul.
Broderick sees oil priceshitting $157 a barrel but likes natural gas even more and plans to buy should there be a sustained pullback.
Broderick also sees copper as a strong play with its demand from manufacturing, while also liking silver for a second-quarter rally.
"If we've seen the bottom in the US economy that means that our demand for overseas goods will ramp up again, which means their economies which are already in overdrive will only accelerate," he says. "That means global demand in commodities will keep accelerating."
Retail investors looking to play metals and other commodities can reduce risk from the futures markets and play them through ETFs like the iShares Dow Jones US Basic Materials , the PowerShares Base Metals and the streetTRACKS Gold Shares funds.
Corn as a Wild Card?
Krosby is less bullish on commodities, contending that investors must still keep them in their portfolios but recommending that they limit their exposure going forward. Emerging markets are a "crucial" element of the trade right now, she says.