Commodities: Mirror Equities Drop

Commodities mirror drop of equities

Almost everything in the current market are acting like they're in a conspiracy against commodities, as they go against their usual behavior and drop along with stocks. Investors usually use them as a hedge when the equities market falls, but this time around there's no safety there.

Once the period of deleveraging dissipates we'll get a better picture on whether that's the major downward pressure on raw materials. It's definitely one of the key reasons commodities are underperforming, as funds are forced to sell in order to access capital.

Of course this also increases the strength of the U.S. dollar, which in turn puts more downward pressure on commodities, as when funds move out of their positions in commodities, it brings them back to the U.S. dollar which most are denominated in.

The other obvious reason for the ongoing plunge in commodity prices is the economic conditions themselves, where demand for raw materials has declined significantly. This is one of the major reasons China is putting their own stimulous package into play, to spur domestic growth by providing capital for infrastructure projects.

When forced liquidation (deleveraging) begins to slow down, that'll probably be the first step toward shoring up the raw materials market again.

All of these factors will continue to drive the prices of commodities across the board.