The rally in commodities over the past few weeks has been closely linked to the weakness of the U.S. dollar, according to Charl Malan, who is part of the investment team managing $1.7 billion in two commodity funds at Van Eck Global.
It is not uncommon for gold prices to rise as the dollar weakens, but when such a hedge spreads to commodities, it generally suggests that basic investment principles are no longer driving pricing, Mr. Malan said.
“I look at gold as a financial instrument, but beyond gold, I analyze all other commodities from a supply-and-demand perspective,” he said. “To tell if a weak dollar is driving up commodity prices, you just look at the price of the commodities in other currencies. All commodities over the past three or four weeks have been moving in the same fashion as gold.”
The environment has been good for investors in the Van Eck Hard Assets Fund (GHAAX), which is up 55% this year through yesterday, and the Van Eck International Investors Gold Fund (INIVX), which is up 56% over the same period.
The S&P 500, over the same period, gained 21%.
What might drive commodity prices down, according to Mr. Malan, is a scenario that would combine a significantly stronger dollar over the next few weeks with a global economic picture that has not fundamentally improved.
Barring that unlikely chain of events, Mr. Malan said that higher interest rates will be good for gold as an inflationary hedge as global economies move out of recession. Greater economic activity also will be good for other commodities as demand increases.
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