Panic as commodity index plunges

"An unbiased, major barometer of commodity prices," is how Thomson Reuters describes its CRB Continuous Commodity Index. And that's why it's so important. But the equally-weighted index is falling fast and last week plunged through major support levels.

Just weeks before, the 57 year-old index confirmed what is referred to by technical analysts as a "death cross" - it's when the 50-day moving average crosses under the 200-day moving average, and is often taken to indicate a bear market.

The CRB index is comprised of 17 commodity futures that are continuously rebalanced - Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Soy Oil, Platinum, Silver, Soybeans, Sugar and Wheat.

But prices are under immense pressure.

Source: S&P Capital IQ

There's growing speculation that the Chinese may accept slower growth. "China will not make major policy adjustments due to a change in any one economic indicator," said China's finance minister Lou Jiwei at weekend.

The comments, made at a meeting of G20 finance ministers in Australia, have been taken to mean that the Chinese will not launch a massive injection of stimulus to keep the country's economic wagon rolling.

Gold is already trading at a nine-month low and silver has slumped to its worst in four years. With the fast-growing American economy making a rise in interest rates likely sooner-than-later, there seems little respite here. Over-supply and weak demand have sent oil prices to their lowest in over two years, too, and drought in Brazil has hammered coffee prices.

Food for thought.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.