You are on page 1of 3

Gold -Historically, in recession periods, price of physical assets such as gold

increase as people no longer believe in the value of traditional currency.


Between 1994 and 2008 the price of gold slowly increased, possibly due to
increased demand of expensive electronic connectors that use gold as a highquality conductor. Then, in 2008 there is a clear devaluation as the recession
begins dropping demand and increasing supply as consumers try to sell gold
in necessity. The price of gold then quickly increases faster than ever due to
growing perceived value of physical commodities. This trend ends in 2011
when gold price peaks and begins to decline. Some speculate that this is
because the gold bubble rose too high and people were no longer willing to pay
that much, particularly in India (the biggest gold importer). Additional tariffs in
India enforced in '11 also made gold even more expensive, reducing demand
twofold and therefore possibly causing value to slump. The continued
restoration in the economy means gold continues to fall till today, as investors
have more lucrative choices.
Aluminium Prices are generally unstable as they depend on many things,
most notably transport. Aluminium reached a 20-year peak just before the
recession, possibly because of the large demand for houses (having aluminium
struts) which suddenly diminished when consumers no longer had the cash
and banks stopped issuing mortgages and long-term loans. Another reason is
that there may have been overproduction of aluminium (from China, the
biggest exporter), causing supply to greatly outweigh demand and pushing
prices low. However, the price rapidly grew again. There could be a number of
reasons for this, but I believe it's due to the increased demand in ready meals,
takeaways and other packaged foods which use aluminium as their main
source of packaging. There's also the fact that aluminium is crucial to all kinds
of production, including that of cars and planes, making prices generally
insensitive. The price then peaked again between '10 and '11, possibly due to
rising demand in emerging markets. This year prices are beginning to rise as
new construction projects are funded globally.
Petroleum One of the most crucial resources for production across many
industries, petroleum is in high demand and over the last 20 years has seen a
485% increase in price. Like the previous commodities, there was a peak and
slump in 2008, most likely due to decreased consumer demand for goods and
also transport. However the price did not hit rock bottom as crude oil is still
required for energy and commuters. Thanks to the basic industry requirement
for petroleum and lack of substitute commodities, the price quickly rose again
and has been at an unstable plateau since 2011 (still lower than pre-crash
prices however). Recent fluctuations in price are small but may be happening
because of unstable supply from middle-eastern countries with good natural
resources under power shifts from the arab spring. There is also an increase in
demand for alternative transport e.g electric vehicles, which decreases the
demand for petroleum.
Wheat What's interesting here is the 1996 peak, where prices rose 45.4%.
This was caused both by drought and by an incredibly cold 1995 winter. Supply
severely damaged and demand remaining constant caused prices to skyrocket,
only to return the next year. This is where perishable commodities differ
supply depends on weather conditions and so prices are unstable. The peak

before the recession however was probably caused mainly by unnatural


causes: for instance, Kazakhstan decided to impose new export tariffs (for
internal economic reasons). There was also terrible drought in Australia and
cold weather in Ukraine, further increasing the pre-crash peak. After and during
the crash, there was a gradual decline compared to other commodities,
probably because wheat is used in all sorts of foods and, food being a necessity
for life, is price insensitive. Prices rose once again at record rates in 2010 due
to drought in Russia and has been fluctuating at that price since.
Sugar At last! A commodity largely unaffected by the '08 crash! From 1994
until 2000, sugar prices dropped due to an increased industrial efficiency
creating larger supply. However, in 1999 the supply exceeded the demand and
prices were at record low, only remaining above nothing due to basic
transportation costs. This caused the supply of sugar to halt, and created a
sudden spike from 2000 onwards. This spike is nothing, however, compared to
the spike in 2005-6 which followed ever increasing demand. Brazil (the largest
sugar supplier) and the EU had already sold their supply, and an unexpected
demand from Pakistan and Iraq caused supply to be tight. Prices, of course,
then dipped again as the emergency subsided. These fluctuations happened
repeatedly, slowly increasing, until '11 when prices started to gradually drop.
This is truly a case of history repeating itself as industrial processes become
more efficient and supply continues to outstrip demand.
Coffee - In 1994, the cost of coffee was at its highest throughout this 20-year
period; this may be due to both diminished supplies from frost damage in
Brazil, and also the perceived diminished supplies from Brazil's frost (which was
over reported), meaning buyers were willing to pay more. After '94, prices
steadily devalued until 2001. This may be because of Vietnam entering the
market as a major producer/exporter. The fact that coffee is price insensitive
(it's a saturated market in which people are addicted) meant that there was no
new demand due to fallen prices, making the falls more severe. Since then,
coffee prices have steadily risen, possible due to large corporations such as
Starbucks growing increasingly larger, therefore requiring more coffee. Coffee
prices did dip during the crash, however as I mentioned before it is fairly price
insensitive and therefore quickly recovered by 2010/11. It has remained at
roughly the same price since.
Tea - The most noticeable thing about tea prices is how unstable they are.
Over the past 20 years, prices have followed no clear trend, possibly
suggesting that either supply is incredibly unstable or demand is very
sensitive. However, there is a slight trend for increasing prices between 2001
and 2012. As supply has increased (area used for tea production has
increased), the only explanation is a slow but definite growth in demand.
Therefore, it is probable that supply is unstable - conditions for tea need to be
generally warm and it cannot survive cold winters. Recently, there has been a
drastic decrease in the price of tea. The punters of the Mombasa auction claim
this is due to increased supply of teas in the market and favourable weather.
Cotton - Cotton prices remain mostly stable over 20 years, but have a massive
fluctuation in the 10-11 period. It is likely that this is because of floods in
places like Australia and China plummeting supply, but demand (also mostly
from China) growing. The fact that this is due to environmental factors and not

due to an unprecedented increase in demand is evidenced by the price quickly


returning back to its pre-spike price.
(Most) Sources
Stock prices are from http://www.indexmundi.com/ and
http://wolframalpha.com.
Industry and commodity knowledge from
http://www.wikinvest.com/.
http://web.net/~bthomson/fairtrade/fair666.html.
http://www.fao.org/docrep/006/y5117e/y5117e03.htm.
http://ratetea.com/topic/climate-geography/55/
http://allafrica.com/stories/201312180389.html
http://www.telegraph.co.uk/finance/markets/8301886/Cotton-pricecauses-panic-buying-as-nears-150-year-high.html