Volatility in commodity markets isn’t a new phenomenon. But with Europe and the US battling debt problems, a “flight to safety” in commodities is quite unmistakable. Gold prices are hovering at a record high of $1,610 an ounce. On Tuesday, prices spiked by $2 per barrel for Brent crude.
This situation is likely to persist for a while. The resolution of the Greek situation and the US debt issue may only give a pause to this trend. There are other European economies that are in deep trouble—Italy being the latest in the list of potential trouble spots.
At any given point, policymaking requires the evaluation of risks and making reasonable choices based on such risk appreciation. But this isn’t a mere “risky” situation: it is close to being uncertain. This is the reason for the rush to commodities. Emerging countries such as India need to be careful about macroeconomic choices they make at this time.