Commodities: Boom or bubble?

IF CHANGES IN prices are supposed to be triggered by changes in supply-and-demand fundamentals, then the rise of oil in March past $110 a barrel, on a day when data showed rising inventories and slowing demand growth and it’s subsequent fall days later blamed on a strengthening US dollar, seem to suggest that other factors are at work.

Indeed, those looking to understand oil’s more than 40% rise since last year will also be hard pressed to find their answer in short-term supply-and-demand fundamentals in the market for the physical product, which have not moved anywhere near as much.

Oil’s present disconnect from fundamentals has arisen not so much from the billions of investment dollars pouring into commodities in general as from its paper product’s transformation into the hedge du jour against rising inflation and the falling dollar.

Although Standard & Poor’s...