market folly

This is nearly an impossible question, but I've always wondered: Just how much of the rise in commodity prices is dollar weakness related? Speculation induced? Supply/Demand related? etc

And no, I'm not talking about just oil here. I'm talking about the whole gamut. Although people can make an educated guess, that's really all they can do. There is no way to know just how much affect each component has on pricing.

The reason I pose such an important question is because I am looking ahead at what will be the Fed's rate increase cycle. We all know it will come at some point in time. But, when it does, how do commodities react? How much do they fall? Do they fall at all? I think then and only then do we really see how much of an impact the weak Dollar has had on prices.

I, for one, think the rise in commodities is a combination of all of the above. But, we can't quantify how much of the rise is attributed to each factor. If the weak dollar did indeed play a significant role in commodities' rise, then you would in fact expect a major commodities sell-off once the Fed raises rates. But, what if commodities for whatever reason aren't sold off? Then what? That's exactly my point. Now is the time that we need to be testing our investment hypotheses and developing a game plan for the coming months. Numerous of my investment plays are centered on or affected by commodities prices. In the coming weeks, I will be developing a portfolio gameplan for 3 different scenarios. I need to breakdown my portfolio and figure out which plays are based on Dollar weakness, which plays are based on supply/demand fundamentals, and which plays are based on speculation/hedge fund swarming.

Just something to think about...