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Wednesday, September 13, 2006

Why Commodities Have Sold Off & How To Hedge Yourself- Part 1

By Yaser Anwar, CSC of Stock Market Beat

Commodity prices have plummeted by as much as 25% since end of July/start of August. Whether it was silver, gold or oil, they have had their fair share of losses.

The reasons why you have seen such percipitous declines in commodities can be credited to:

Hurricane Ernesto did not hit oil facilities in the Gulf of Mexico, as expected.

Iran’s refusal to comply with deadline for ceasing enrichment of uranium did not resulted in any new sanctions or military action against Iran, so far.

The recent cooperation by Iran pertaining to enrichment of nuclear energy.

Rise in September inventories of oil and crude to record highs, putting downward pressure on those prices and other commodities.
Other than the aforementioned reasons, commodities are prone to more vigorous corrections, especially since they have been the outperformers for this bull market.

The situation with the hurricanes, the War on Terror & geopolitically factors could change rapidly, at the moment it appears that commodity prices could further correct before resuming their leg up.

It would be prudent for investors to hedge their bets with exchange-traded funds such as OIH, DBC, GLD to name a few.

Look for Part 2 to appear tomorrow under the heading, "Long-term Outlook for Commodities Still Bullish."

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