This great commodity rally doesn’t mean that spring has arrived

All in all, this is an odd moment for an outburst of high spirits: not from me — I’m as phlegmatic as ever — but from commodity investors. The price of a barrel of oil has rallied from $27 to $40 after talks between Saudi Arabia and Russia about restricting supply; one pundit called that ‘meaningless theatre’ but others expect a climb back to $50. In a similar mood, copper prices have risen by almost a fifth — reflecting producer cutbacks combined with a belief that the Chinese downturn in demand might not be so severe as was first feared. Likewise iron ore, which surged so fast at the beginning of this week that one analyst called it ‘berserk’, while the biggest player in global steel, the Indian tycoon Lakshmi Mittal, declared that ‘things should continue to improve’. Shares in miners such as BHP Billiton and Rio Tinto have rallied in parallel.

Gold is an indicator of a different sort, since its ‘safe haven’ status means it often rises in response to bear sentiment elsewhere; but it too has joined the upbeat bandwagon, gaining more than $200 an ounce since January. What are we to make of all this? Arguably the ‘China slowdown’ story was well overegged; the US recovery, evidenced by jobs data, is still strong; supply and demand are coming back into balance and the real-world economy is not as out-of-kilter as markets were previously signalling. Well, maybe; I hope so. But there is speculative froth behind this commodity rally, and Goldman Sachs for one says it is ‘premature’ and ‘not sustainable’. Let’s call it a short-term opportunity for the bold, rather than a long-term shift in the right direction.