Commodities, an investing bubble about to burst?

According to the Lehman brothers brokerage, commodities are a bubble about to burst. Record breaking commodity prices that have drawn fund managers toward commodity investment, threatening to form an asset bubble that could be about to explode soon.

Estimating total assets under management in commodity indices to have increased to $253 billion by April from only about $70 billion in 2006. About $90 billion is accounted for by financial inflows with the remaining $75 billion stemming from price appreciation of the underlying investment.

One of the indications of bubbles forming, is when higher prices occur in spite of surplus in stocks. This typically happens when excessive speculation enters the market ignoring the intrinsic value of the underlying asset. The resale value speculation becomes the focus of the valuation. When this "fictional" evaluation loses its footing, the prices tend to fall at high speed.

With oil having reached $127 a barrel today, at the same time when the president of OPEC, Chakip Khelil declared in Algiers, that there is no shortage of supplies when it comes to oil. Conflicting signals like these should ring some warning bells. Signaling at least the possibilities of profit taking in the market. Iraqi oil minister Hussain al-Shahristani supported this when he said that the OPEC nations plan to boost total oil exports to 2.3 million barrels per day, up from 2.0 million barrels by the end of the year, meant there was more oil in the market than the consumers want.

Some analysts have warned that the commodities markets are not as fund loaded as the bond and equity markets, the illiquid nature of some of the commodity markets could become a problem and a transfer of as little as $ 1 million, could have a major effect of the market.