Monday, March 23, 2009

Commodities Prices Rise as Investors See Inflationary Dollar


Commodities prices rose last week by the most in a several-month span, pushing upward by around seven percent. Investors shifted their money into commodities following news from the U.S. Federal Reserve that it would buy $300 million of government debt and bonds. That news prompted concerns of long-term inflation and and therefore a falling dollar.

Commodities prices had tumbled from their record high in July 2008 as the global financial crisis accelerated. Oil prices, for instance, fell from over $150 a barrel to less than $40 a barrel in the span of a few months. 

However, commodities prices recently rebounded as investors sought a safe haven from the declining value of the dollar. The Euro pushed up to 1.36 against the dollar after the Federal Reserve's most recent plan to purchase debt, which will involve essentially printing more money and diluting the dollar's value.

Oil led the jump in commodities prices, while natural gas, copper, heating oil, and cocoa also registered significant gains. Oil climbed above $50 a barrel after hitting a low of $34 in February. 

The rise in commodities prices also reflects investor optimism that the global financial crisis has hit bottom and should begin to rebound soon, or at least not fall any further.

1. How does the price of commodities affect nations' economies globally? Are primary-product exporting countries with relatively poor populations helped or harmed by increases in commodities prices? 

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