Commodities Stock Bubble

Is a commodities stock bubble about to pop? And which commodities are at more risk than others? Many preduct Gold ETF Funds to have sharp turn in coming months. Here are experts from a Reuter’s article I read today.

A bubble has formed in commodities as “speculative fervor” returns to markets after the global financial crisis, veteran Wall Street economist Henry Kaufman said on Monday. “There are bubbles in commodities,” and probably in the gold market as well, Kaufman, president of financial consulting firm Henry Kaufman & Co Inc in New York, told analyst at Outlook Summit in New York. He cited the return of leveraged bets as one driver of select commodities stock bubbles.

Because commodity markets are small compared with some other financial markets, comparatively modest shifts out of other assets could increase the risks in commodity markets.

However, the “speculative fervor” where participants are borrowing heavily in short-dated markets “might be a risk for the dollar,” Kaufman said.

Investors, spurred by near-zero U.S. interest rates and easy availability of funds, have borrowed huge sums of money in dollars in recent months to purchase higher-yielding assets in so-called “carry trades.”

Kaufman went further to say he did not expect the U.S. government to take any action to stabilize the dollar at the degree they have gone.

Longer term, if the U.S. economic recovery is more anemic than that in some other major economies, that will weigh more on the dollar, he added, citing the area between 80 yen and 85 yen per dollar as a “testing point.”

Despite some analysts’ concerns that the huge amount of U.S. government debt issuance will ultimately pummel the dollar and push U.S. government bond yields steeply higher, Kaufman expects the 30-year Treasury bond’s yield will rise only moderately to about 5.5 percent by early 2011, from about 4.4 percent now.

Kaufman became known as “Dr. Doom” for correctly forecasting higher inflation and interest rates when he was chief economist with Salomon Brothers in the 1970s and 1980s. He is also known as an expert on the Federal Reserve.Look for several of the barn burner commodities to peter out soon. Keep close eye on Top Gold ETF Funds: ProShares ultra Gold (UGL Prices) and SPDR Gold Trust (GLD Prices). Follow current hot stock picks with Stocknod Hotsheet.