Commodities prices to crash in 2011?

LONDON (Commodity Online): Will commodities prices crash in 2011? Every investor worth the name has been bullish on investing in commodities, and prices of all the commodities from gold, silver, copper to agricultural products have been surging in 2010.

Will the commodities be able to sustain the continuing bullish rally in 2011?

While veteran commodities investors like Jim Rogers have been predicting that the current commodities boom cycle will continue in the coming decade, not all are confident about the sustainable rally in commodities.

This week, the year-end gains in several commodities were wiped in overnight trades around the world. Gold, silver and crude oil prices came down, giving investors who have poured money into them the jitters.

According to Janet Mirasola, managing director with R.J. O’Brien & Associates, extreme volatility may continue in commodities and there are possibilities that commodities prices can crash for short term in between.

On Tuesday, gold lost more than 2%, crude oil dipped back below $90 a barrel and copper gave back more than $200 after it had made yet another new all-time high at $9,754 a metric ton in early trading.

“Sharp corrections should only be expected in these markets and even though the commodity story ‘has legs,’ the bull trade from late last year may have been overdone as window dressing and over-excitement carried values beyond fundamental factors,” Janet Mirasola.

She added: “This first week of the New Year will continue to be volatile, giving short-term investors cause for caution as profit-taking takes hold.”

Several commodities analysts have already warned that crude oil prices could crash to $80 per barrel level in 2011.

“I am unsure if commodities led by gold, silver, copper and crude oil will be able to sustain the current rally. There is a fundamental chance that commodities prices can crash. The main reason for this is that prices of crude oil, gold and agricultural commodities are at record highs,” Sam Johnson, a commodities specialist.

According to Johnson, historically commodities prices have crashed for short durations even during super commodities cycles.

“Commodities will witness a cooling period in 2011. I would not call it a big crash in prices. But certainly, commodities prices will come down,” he added.

Edward Meir, senior commodities analyst MF Global, one of the largest global commodity brokers, says while investors have reaped rich dividends out of putting their money into commodities, they need to be cautious about commodities class in the new year.

"Investors may take stock of the 2011 landscape and may not necessarily like what they see," he said.

"Although the world macro picture is far improved from where we were two years ago, there are trouble spots looming ahead," Meir said in a commentary on energy and metals.