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A construction worker walks past a work camp at the Rio Tinto Alcan Inc. smelter facility in Kitimat, B.C. in this file photo.Ben Nelms/Bloomberg

The commodity boom is back – surprising many observers and raising questions about how long the good times will persist.

Over the first six months of the year, the Bloomberg Commodity Index surged 14 per cent, well ahead of global stocks and bonds. The benchmark, which follows the prices of 22 raw materials, continued its strong performance on Monday, with silver and nickel making big advances.

Prices for several commodities are now outrunning the expectations of even bullish analysts. Last week, in response to silver's brighter outlook, Anita Soni at Credit Suisse raised her forecast for the metal by 15 per cent, bumping it up to $19.03 (U.S.) an ounce in 2017. On Monday, silver sped past her revised estimate for next year and briefly touched $21 an ounce.

Many other analysts also found themselves overtaken by the recent outburst. "The continued surge in the silver price has already taken it close to our end-2017 forecast of $21 an ounce, which had looked very bullish," Julian Jessop of Capital Economics wrote in a note Monday.

Compared with the dismal performance of global stocks – which combined to lose 2.5 per cent so far this year – the strength of silver has been striking. It is up 46.8 per cent since January.

Impressive results have also been posted by gold (up 27.2 per cent), zinc (33.9 per cent), nickel (13 per cent) and Brent crude (34.4 per cent). But the simultaneous gains by so many different raw materials offer mixed signals about which way the global economy is headed next.

On the one hand, the rise in many base metal prices indicates optimism about the world's prospects for growth. Raw materials such as iron ore, copper, zinc and tin are vital for construction and industry. They tend to become more expensive when people expect lots of home building and robust output from factories.

On the other hand, precious metals prices have risen even more than their base metal cousins over the past few months. Gold and silver are traditionally bought as havens from possible chaos ahead. Their big gains suggest many investors aren't expecting healthy growth, but rather see rising odds of economic downturn.

This murky picture is made even more confusing by the unusual spectacle of commodity producers badmouthing the prospects for their own products.

Jean-Sébastien Jacques, the new chief executive officer of mining giant Rio Tinto, told the Financial Times in a weekend interview that just about all industrial commodities are in oversupply and he sees no end in sight to the long-term drag on prices. Copper may be the first key raw material to move past the glut stage, but other industrial necessities, such as iron ore and coal, still have "a long way to go," he said.

The simplest explanation for why commodity prices are spiking in the face of such skepticism has to do with a radical revision in the outlook for interest rates.

At the start of the year, the U.S. Federal Reserve was expected to raise rates in response to a recovering U.S. economy. Instead, a steady trickle of lacklustre readings has put the Fed on hold.

In June, the British referendum in favour of Brexit gave policy makers in Europe and around the world additional reason to put off rate hikes – or even to lower rates.

Low rates make precious metals look more attractive because gold and silver pay no yield and tend to do best when competing investments are also offering little in the way of payout.

But low rates can also help base metal prices because they tend to spur home buying and other types of construction that require copper, iron ore and other industrial raw materials.

So long as rates remain at rock-bottom levels, they provide support for the bull market in commodities, but that support could vanish quickly if stronger readings on the U.S. economy put rate hikes back on the table.

Rising silver prices, in particular, are no longer about people seeking a haven, but rather reflect "the further lowering of expectations for interest rates, particularly in the U.S.," Mr. Jessop of Capital Economics said.

He remains positive about the medium-term outlook for both industrial and precious metals, but "would not be surprised to see a sharp correction in the price of silver in the coming weeks."

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