Low interest rates, speculation, commodities, crude oil and Gold...

THE U.S. FEDERAL RESERVE's artificially low interest rates should be blamed for the increasing volatility and speculative excess in housing, stocks, bonds and commodities, writes Sreekumar Raghavan in Kochi for Commodity Online.

   That's according to Marc Faber, globally renowned investment advisor and fund manager behind the widely respected Gloom Boom & Doom report.

  
In a telephone interview with Commodity Online from Hong Kong, Dr. Faber said that because of the now recessionary trends in the US economy, both the US trade and current account deficits are declining – which means less liquidity in the international markets.

  
This means commodity prices could also start declining. But certainly in the near-term, both oil and Gold Prices are bound to move up thanks to the Fed imposing negative rates of interest after accounting for the rate of inflation in the cost of living.

  
Regarding the latest projections from energy analysts calling for oil prices at $200-250 per barrel, Faber said that he was not sure of such figures. What's more, the role of speculation in rising oil prices may be a little over estimated.

  
Non-commercial traders – the so-called "speculative" investors – are not as crucial for the current surge in oil prices as supply-demand mismatch. Because during crude oil's long bear market, which matched declining Gold Price from 1980 to 2000, very little new investment went into mining and exploration.

  
That's now the main cause of the present crisis, Faber believes, thanks to increased demand from fast-growing economies like India and China resulting in a shift in the demand curve to the right.

  
"However, we must remember that per capita consumption of oil in India is only 0.7 gallons which is expected to double soon," Faber went on. "This is much less than what the USA and other nations consume.

  
As it is, "the US energy policy has always encouraged consumption. The ethanol produced from sugar in Brazil is sensible, but the United States uses more energy to convert corn or wheat into biofuel."

  
Faber also said he is upbeat on the prospects of emerging countries in Africa, Asia and Latin America. Investors and speculators have yet to fully understand the potential lying in these economies.

  
Explaining the unique name for his monthly report, Gloom Boom & Doom, Faber said that it reflects the changing mood and swings of markets everywhere.