ABSTRACT
Fundamental analysis starts from the economist’s proposition that prices are determined by supply and demand. Broadly, there are two approaches to the analysis of price movements, and although each school has its enthusiastic adherents, most traders rely on both approaches for most of their trades. The two approaches are, first, the fundamental; and second, the technical. People’s demands for food are finite, and as they get richer they spend a smaller and smaller proportion of their incomes on food. As a result, production of certain crops can fluctuate widely from one year to the next without major changes in planted areas. The relationship between price and consumption does vary from commodity to commodity. Broadly speaking, this relationship is a function of the availability of substitutes and the proportion of income which is spent on the commodity. The relationship with income is quite important for understanding commodity price movements.
