Demand for commodities of all kinds is ramping up at breakneck speed. And despite fears of a slowdown in China's economic growth, Dr. Copper is leading the rise in commodities prices.
Copper earned that nickname because it's thought to be a bellwether on the health of the global economy, thanks to its numerous economic uses.
Prices slumped after Chinese Premier Wen Jiabao cut China's economic growth target to 7.5%, the lowest since 2004. China is the world's largest copper buyer, snapping up 40% of annual supplies.
However, predictions for weak copper demand were muted last Monday, as the Asian giant reported a stream of new orders pushed factory activity to an 11-month high in March. Growth in the US manufacturing sector also picked up in March, more evidence that the world's largest economy is gaining momentum. The red metal jumped on the manufacturing data and is up 13.8% year-to-date (YTD).
The news has analysts predicting demand for copper is likely to pick up steam. "The US is an important market, and with the economic outlook there brightening, demand is also likely to surprise to the upside," Commerzbank AG (PINK: CRZBY) analyst Eugen Weinberg told Reuters. But Dr. Copper is just part of the story. Just take a look at what's happening in other commodity markets...
Commodities Prices are On the Rise
If you're looking for action, look no further than the explosive commodities markets. Most of the industrial metals have been on a tear in 2012, paced by tin, which has surged to a 20.5% gain. Zinc has risen 8.8%, while aluminum is up 6%.
Food costs rose to an all-time high in February 2011, setting off riots in northern Africa and the Middle East. Corn futures climbed to a record $7.9975 in June, as US stockpiles slid to a 16-year low.
Now, US farmers are set to plant their fields with nearly 96 million acres of corn seed, the largest amount in 75 years, as corn supplies have fallen 8% year-over-year. Energy costs have followed suit. West Texas Intermediate crude oil has surged roughly 34% to $105.23 a barrel since October as tensions mount over Iran's nuclear ambitions.
In fact, almost every sector of the commodities markets has made major moves in the last 24 months, including the grains (corn, wheat, soybeans), the energies (crude oil, heating oil and gasoline), and the metals (gold and silver).
To give you an idea, since May 2010 corn is up over 100%, coffee is up 45%, crude oil is up 56% and silver has posted a whopping 86% gain.
All told, the International Monetary Fund's commodity index has risen 34% since 2010 and more than doubled since bottoming during the financial crisis in December 2008.
And it looks like there's more to come.
Even though Goldman Sachs Group Inc.'s (NYSE: GS) commodity research team said the economy will "soften" next quarter, they advised clients to remain overweight in commodities over the next 12-month period, Bloomberg News reported.
Goldman's research team is forecasting a copper price of $9,000 a ton in six months, up from about $8,600 today.
So, what's behind the relentless surge in prices?
Liquidity Drives Commodities Prices
Governments around the world reacted to the financial meltdown of 2008 and the European debt crisis by flooding the financial markets with trillions in stimulus funds and bailouts.
They have been relentlessly priming the pump by printing money and manipulating interest rates to prop up their economies.
As the value of fiat currencies like the dollar and euro begin to fall, it's inevitable that hard assets of all types will jump higher.
Commodities and mining expert Peter Krauth says other factors will continue to drive demand for years to come.
"We have a major demand driver in Brazil, Russia, India and China. But what most people are missing is the demand coming from most of the rest of the developing nations," said Krauth. "Their GDP growth is expected to run at double the rate of developed nations within just eight years." In fact, virtually every substance vital to modern life will soon become enormously expensive and profitable for investors who know how to play it.
Yet, many investors view the commodity markets as too complicated and speculative for their hard-earned dollars.
But with the advent of exchange-traded funds all you need is a standard brokerage account to ride the commodity wave in a safe and prudent manner. You can invest in sector funds like the iPath Dow Jones-AIG Copper Total Return ETN (NYSE: JJC) or the United States Oil Fund LP ETF (NYSE: USO. Or for broader exposure there's the U.S. Commodity Index Fund ETF (NYSE: USCI).
At this point, commodities are in a long-term supercycle and a worthy addition to any investment portfolio.
As Krauth explains in his latest report, "today's scarcity and soaring costs could spur the biggest investment gains in history."
Don Miller is a contributing writer with Money Morning.