The Outlook for Commodity Prices Continues to be Bullish

Includes: DBC, GSG
by: Yaser Anwar

The current volatility in commodity prices begs the question of whether this is the start of a bear market, or just a correction in a very long-term bullish trend. Historically commodity bull markets can last for up to 15 years.

Here are some indications that the commodity bull that began in 2001 has not run its course yet:

* No great bull market is entirely immune to such corrections. Even the Nasdaq in the 1990s and gold in the 1970s saw corrections of as much as 30 percent in the context of a longer-term up trend.

* Brazil, Russia, India & China's industrialization alongside rapid growth in the entire developing world will act as key forces to sustain structural demand for commodities, from steel to platinum, gold reserves to oil.

* Gulf of Mexico oil and gas production still hasn't fully recovered from hurricanes Katrina and Rita. Plus supplies were severely interrupted for months after the storms last year. If another major storm were to affect drilling operations in the region, supplies of oil and gas could be cut off once again, causing another shortage and spike in energy commodity pricing.

* Real commodity prices are still low relative to their long-term trend, despite rapid increases in recent years. One example would be Natural Gas, which is selling roughly around 59% of its Crude equivalent value.

Bottom line: The secular bull market in commodities remains intact.

Note: Investors can buy commodities via two commodities ETFs that track indices from Deutche Bank (NYSEARCA:DBC) and Goldman Sachs (NYSEARCA:GSG).