COMMODITIES AND RECESSION
Thursday, 13 October 2011 18:32
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How the recession affects the price of precious metals? Gold, silver, platinum and palladium are classified as precious metals and are considered the "safe value" because it conserve and increase their value in times of crisis, such as during a recession. When a recession looming, investors perceive gold as a safe haven and its price will fly to the stars, as happened between 2007 and 2011. Because of these rapid ascents one might wonder if gold is not too expensive and overrated (Soros recently paid 99% of its positions in the fund SPDR Gold Shares, an investment fund based physical gold). An examination of historical data also observe that the actions and precious metals tend to move in opposite directions to each other. Then the precious metals during a recession are growing.
How the recession affects the price of metals and other commodities? 
Industrial metals are bulky and expensive to maintain for long periods, while agricultural products are perishable over time. For these reasons the price is influenced mainly by the rate of consumption (not expedient to keep them in the absence of consumption). So in times of recession the price of these commodities goes down because of falling demand for goods in international markets. But if the production of commodity is reduced, lowering the price can be slowed or stopped. For this reason, the descent of rcommodities has always been a limitation: it can not reach zero because, when prices reach the cost of producing the commodity is no longer manufactured (in the case of industrial metals are closed, partially or totally, the mines). Usually the reduction of production of raw materials is a significant delay, so achieved lower prices during a recession may last for a long time.
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The commodities (gold, silver, aluminium, petroleum, cotton, etc.) prices are very volatile and difficult to predict. But we have a good understanding of how prices change with the changing of economic environment. To better understand we group the commodities raw materials into two big sets: the set of precious metals and the set of industrial metals and raw materials, perishable.
