Don’t sell your investments in commodities yet.
Billionaire George Soros says the boom in commodities is still in a "growth phase.”
In fact, prices for commodities like oil, wheat and gold continue to rise to new records, defying the paradigm that commodity prices should fall as the U.S. economy slows.
Oil prices have more than quadrupled since 2002 as supply fights to keep up with growing demand, reports Reuters, especially in China and other emerging economies.
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Oil on April 18 hit a record $117 a barrel as nervousness over oil supplies from Nigeria outweighed a rally in the dollar and fears of an economic slowdown in China.
Gold and wheat prices dipped on a slight recovery of the dollar and increased global supplies, but rice prices have surged. The U.S. Agriculture Department said in a weekly report that U.S. rice exports last week were nearly twice that of the previous week and the highest in five months.
In addition, corn has advanced 68 percent and, despite the small fall-off in wheat prices, wheat still has advanced by 92 percent.
"You have a generalized commodity bubble due to commodities having become an asset class that institutions use to an increasing extent,” Soros told an audience at an event sponsored by the Centre for European Policy Studies.
Commodities have outpaced stocks and bonds this year, spurring pension funds and other investors to increase holdings in wheat, gold, copper and tin, according to reporting in Bloomberg.
The UBS Bloomberg Constant Maturity Commodity Index of 26 commodities has returned 20 percent so far this year. Meanwhile, the S&P 500 Index of stocks has fallen 7.3 percent, reported the news service.
U.S. Treasuries have returned 3 percent to investors, according to Merrill Lynch indexes.
In addition to commodities being undervalued, the "financial crisis is leading to a flight from all paper currencies, causing diversification into the safe havens of gold, silver and oil,” Soros said.
Soros isn’t alone in his assessment of commodities’ value.
Jim Rogers, a co-founder with Soros of the Quantum Hedge Fund, has had a reputation since the late 1990s for being a commodities bull, and that was before the market rallied in 2001.
Since then, the Rogers International Commodity Index has more than quadrupled since its start in 1998.
Rogers also is skeptical of the dollar’s future value. He favors hard assets such as gold, oil and agricultural commodities.
Soros, though, remains more optimistic on the dollar, and he believes the greenback will eventually reclaim its supremacy.
"The euro, while it is obviously an alternative, is not a truly attractive alternative, and therefore there’s a general flight from currencies,” said Soros.
"That’s how you have the creation of sovereign wealth funds, which are basically seeking to diversify from monetary assets to real assets.”
© NewsMax 2008. All rights reserved.
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