For all those investors trying to make a buck investing in resources stocks, you are doing it tough, and things are likely going to get worse. Bloomberg's Commodity Index, which measures a selection of 22 commodities, has fallen to its lowest level in 13 years.
Overnight, gold, copper, oil and iron ore continued the trend.
Spot gold dropped 0.4% to US$1,090 an ounce.
Copper fell 1.7% to US$5,272 per tonne.
Brent Crude oil fell 1.5% to US$55.27 per barrel, although West Texas Intermediate (WTI) used in the US rose 0.6% to US$48.72 per barrel.
Iron ore fell slightly, losing 0.1% to US$51.72 per tonne.
They aren't the only commodities getting hit either. Aluminium, tin and nickel have also taken big hits in the past year – and those are the falls to the end of June, not including recent price falls.
| Commodity | 1-year price change |
| Iron Ore | Down 33% |
| Gold | Down 8% |
| Copper | Down 14% |
| Oil | Down 44% |
| Nickel | Down 31% |
| Tin | Down 34% |
| Aluminium | Down 8% |
Source: Indexmundi
At the end of June, iron ore sold for an average price of US$62.29 per tonne. It's fallen 17% since then while gold is down a further 8%. Other commodities have had similar falls in July.
Like stock markets, commodity prices tend to overshoot on both the upside and downside, falling and rising well below and above 'reasonable' levels. Essentially, commodities prices are driven by supply and demand and the biggest factor currently influencing prices is falling demand, particularly from China.
As the country transitions from an economy driven by industrial development to one driven more by consumers and consumption of goods and services, commodities demand is likely to continue falling.
Iron ore also faces the issue of booming supply as we've repeatedly mentioned. This one chart explains a lot about where the iron ore price is likely to go.
Foolish takeaway
Now is probably not the time to invest in resources companies – unless they are well-diversified miners like BHP Billiton Limited (ASX: BHP) offering substantial compensation for price falls in the form of dividends – and no, Rio Tinto Limited (ASX: RIO) is not a diversified miner, with virtually all earnings coming from iron ore.
