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Are commodity prices now in the danger zone?

Economists at Capital Economics believe so, and they predict a hefty fall over the next two years, though the think the price of gold could scale new heights.

"We expect most commodity prices to drop back sharply over the next couple of years," the forecasters said in a lengthy global outlook.

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"However, we think that the price of gold could resume its climb due to reduced risk appetite as the global recovery falters and new shocks hit the financial system."

Among their insights:

Commodity prices have generally extended the gains of last year, in some cases topping the highs "at the peak of the bubble" in 2008, though some precious metals have dipped.

Agricultural commodity prices are especially strong, pushed up by "supply shocks" and political developments meant to contain them. Governments fearing social unrest have restricted exports and boosted imports. "The crisis in Egypt is encouraging this behaviour, which in the near term actually makes the situation worse," but prices should drop back.

The crisis in Egypt has helped drive up oil but prices probably would have reached these levels regardless, and are expected to fall.

Capital Economics warned oil prices could spike if production in other Mideast countries is disrupted, or if transport through the Suez Canal suffers, though that's unlikely. Rather, the forecast calls for Brent crude to slip this year, and even more next, to about $75 a barrel (U.S.) as demand growth ebbs.

Gold, though, will continue to gain, to $1,600 an ounce by the end of this year and $2,000 next, based on less of an appetite for risks and the aforementioned shocks to the financial system.

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"Prime candidates include a U.S.-China trade war, renewed turmoil in the euro zone, and a fiscal crisis in Japan," Capital Economics said. "Interest rate expectations and real yields are also likely to fall back again."

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