>Why investors are rushing to commodities (RELIGARE)

2008 was a memorable year for commodities globally and commodity futures in particular in India. A quick review of the year gone by shows that the demand slowdown is firmly in place and the prices of key commodities are significantly down compared to a year ago.

Several commodities including crude oil, gold, aluminum, copper, soyabean, pepper and a host of others touched their all-time highs only to slide swiftly to then unimaginably low levels. The reason was clearly that prices rose so high so fast that demand was affected.

In many ways, this was a text-book case for pricing. High prices gave short-term profits to producers and traders but it was too much too soon. Consumers simply decided to stop buying and prices crashed. As we have seen umpteen times in recorded financial history, a downward spiral began with low prices chasing low demand.

Crude oil wiped out gains of five years within just five months and the concurrent fall in prices of other commodities has underlined the primacy of crude oil in setting prices across segments. Therefore the fundamental learning from the year has been that the commodity price edifice is built on crude oil prices and therefore it is very important that this key energy source is diligently tracked.

To see full report:Commodities