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What drives the trends in commodity prices?

According to experts at the ICI, important fundamental economic factors—not the least of which are market supply and demand—may cause changes in commodity prices. Experts also believe the relative value of the U.S. dollar and the world business cycle greatly influence prices. The effects of players in key emerging markets, such as China, India, Brazil, and Russia, who are both buyers and producers of many commodities, influence commodity prices. The same report states that the flow of funds into index-based investment vehicles has not created price volatility, that investing in commodity mutual funds helps investors hedge against movements in the basic prices of such items as food and energy, and that the flows of capital into commodity mutual funds have little effect on the overall growth rate of commodity prices. According to the experts, this may be because the mutual funds are diverse in the commodities in which they invest, and because the size of the commodity markets is so large that the effect caused by capital flows into commodity mutual funds is relatively small by comparison.



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