Most commodities have now enjoyed a long period of sustained increased prices, recovering well in advance of the global economic recovery. Indeed, many commodities did not suffer any significant contraction in prices even in the worst period of the financial crisis.

The strong price hike in many commodities, from gold to iron ore to copper, brings the question whether there is a possible bubble developing which will soon explode, sending prices crashing.

Commodity outperformance over the last decade has been substantial relative to past cycles to the extent that it forces the market to consider whether returns will increase going forward or, at the worst, will there be big price falls. However, for a number of reasons, this appears very unlikely and the outlook for most commodity prices still seems very favourable.

There are, of course, a number of factors which could steer the expected continued high prices for key commodities off course. The certain increase in interest rates for the US some time later this year might be the catalyst that sees investors and traders switch say from gold and other precious metals, to holding interest rate products.

If the current high sovereign risk climate for key eurozone countries, and with it their troublesome debt profiles, subsides, then this may influence funds away from commodity safe havens and the risk premium attached to such precious metals.

The price of gold has fallen slightly recently because of such factors but nevertheless other precious metals have strengthened in price, such as platinum where the flow of trades has grown. Moreover, gold remains at a historically high level.

Oil continues to be very well supported, with the high price underpinned by the expected global economic recovery, particularly led by the US, and along with it, higher oil demand. It is difficult to see any major pullback in the price of oil over both the short and medium term.

Iron ore and coal, directly and indirectly used in steel production, have benefited from both continued strong demand in large emerging markets such as China as well as the expectation of the global economic recovery and the pickup in the construction industry.

A recent landmark quarterly coking coal export contract procured by BHP Billiton, the world's largest coking coal exporter, has handed even more power to the producers at a time of rapidly recovering bulk commodity prices. Its recent deal struck with JFE Holdings, Japan's second-biggest mill, at $200 (Dh734.63) a tonne, is 55 per cent above the 2008-2009 contract price of $129 a tonne.

Other factors are also relevant which is likely to maintain high commodity prices. Commodities act as an inflation hedge, particularly highly liquid and tradeable ones such as gold. Interest rates will inevitably rise from the current emergency low levels and, in turn, both the expectation and the cycle of rising interest rates and inflation will support commodity investment and prices. Commodities historically performed well in periods of high inflation, rising inflation or inflation shocks. During these same periods, both equities and bonds show weaker performance and fail to serve as effective short-term inflation hedges. Commodities' relationship with inflation has generally stood the test in periods of both rising and falling inflation, even through times when other markets actually failed as inflation hedges. Commodities have traditionally provided diversification to equity and bond portfolios, demonstrating negative correlations to both. However, over time, the correlations of commodities to equities and bonds have increased.

In particular, correlations have increased over the past two years. This distortion may have been caused by commodities' link with emerging markets. The move to a more positive correlation may help prices going forward as equity markets recover.

Although many commodities have seen significant price increase over the past year or more, financial and economic conditions, particularly on the recovery front going forward, are likely to support prices further. Conversely, their risk haven status will also support prices if the market recovery falters.

- The author is a US-based commentator on business issues