From Economist.comTRADITIONALLY, the beginning of the year is a time for bargain-hunters to snap up excess stock on the cheap. Not, this year, on the commodity markets. On Wednesday January 2nd, the first business day of the new year, oil breached $100 a barrel for the first time. Gold, at the same time, reached a record price of over $861 an ounce.The immediate catalysts for the rising prices were ongoing turmoil in places like Nigeria and Pakistan and the continuing slump of the dollar. To those holding euros or yen, the weakening dollar makes oil and gold look cheaper; they can bid up prices in dollar terms without spending any more of their own currency. Moreover, gold, and nowadays oil too, is seen as a haven when the dollar is weak—so the latter’s drop may be accelerating the former’s rise.Gold is also seen as a haven more broadly, from political turmoil, inflation and all-round economic malaise. Gloomy news from America, where house prices are falling and manufacturing is contracting, have prompted fears of a full-blown recession. The economies of emerging markets in Asia and the Middle East are still chugging along, but analysts are cutting growth forecasts for them too.Normally, the worsening outlook for the world economy would prompt commodity prices to fall, on the assumption that demand for most goods will soon be slowing. But demand for oil continues to rise quickly in booming spots such as China and the Gulf states. These countries make matters worse by artificially inflating demand for petrol through subsidies or price caps, which leave consumers with little incentive to drive less even as the oil price surges.Western oil companies, saddled with rising prices for everything from engineers to truck tyres—and in some cases, outright shortages—are struggling to pump more oil. They have also been excluded from the most promising terrain for exploration by nationalist regimes, which are increasingly reluctant to share their wealth with outsiders. Those same regimes seem in no hurry to increase their output, partly because they realise that their sluggishness is helping to keep prices high. But publicly, at least, the Organisation of the Petroleum Exporting Countries argues that oil at $100 is the result not of a shortage of supply but of financial speculation.There might be some truth in that: in recent years, the volume of oil traded on markets such as New York’s Mercantile Exchange (NYMEX) has risen out of all proportion to the amount consumed. Hedge and pension funds and even individual investors have been piling into commodities of late. This influx of money could be exaggerating the market’s gyrations. Indeed, oil only topped $100 in a single transaction before falling back.Politics is not helping either. A surge in violence in the oil-rich but restive Niger Delta in Nigeria over the New Year’s holiday helped to propel the oil price to three figures. Since the world has few idle oil wells, and relatively low stocks, even minor disturbances in producing countries prompt sharp jumps in the price. The traders at NYMEX, for example, pore over every diplomatic statement concerning Iran’s disputed nuclear programme to see if they can detect a heightening of tensions.All this makes life particularly difficult for the world’s central bankers. High oil prices, after all, further blight the economic outlook by reducing consumers’ spending power. Yet they also stoke inflation, making it harder to cut interest rates. It is proving a gloomy new year for them too.
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