Massive commodity bubbles usually happen in tandem with property and financial bubbles caused by central bank money printing in developed countries, particularly the United States.

Dominoes

But they also tend to collapse when the underlying credit bubble collapses.

Though the US credit bubble has already burst commodity prices are still high, which could indicate that commodities are living on borrowed time already.

"However, commodity prices have to date remained strong despite the signs of weakening economic activity…, Simon Johnson, IMF's research director and economic counsellor told reporters after the release of the World Economic Outlook report this month.

"In fact, I cannot recall a time where I have seen such a striking dichotomy between global commodity and credit markets each sending conflicting signals regarding the global outlook."

Though commodity booms have been fairly frequent in the past several decades – IMF defines a commodity 'boom' as a 12 month period of rising prices – the monetary watchdog says the current boom is 'broad based' in that it has hit metals, commodities, foods beverages across the board like in the early 1970's.

Monetary Bubbles

Economic analysts say the 'oil shock' in the early 1970's, was perhaps the biggest such bubble fired by massive US money printing, which ultimately resulted in the collapse of the Bretton Woods agreement.

During the two world wars money printing led to suspension of gold convertibility by both the Bank of England and the Federal Reserve.

After World War II under the Bretton Woods agreement the US dollar was again linked to gold at 35 dollars an ounce. Other currencies were pegged to the US dollar.

But progressive US money printing soon created a parallel markets for gold where central banks were trading gold at one price and the rest of the world at another price. The 1968 Vietnam War also did not help US monetary policy.

In 1973 the dollar finally broke its link with gold amidst soaring precious metals prices and became a fully fiat floating currency.

Tightening

After that bubbles came in quick succession. Economic analysts say a period of global instability and high inflation ended in the early 1980's after then US Federal Reserve chairman Paul Volcker tightened monetary policy severely.

The IMF says price indices for metals, foods and agricultural commodities have been jointly booming since early 2005. Crude oil prices and metal have been booming since 2003.

"Although broad-based booms have occurred previously, they have typically been much shorter than the current one," IMF said in the WEO.

"Previous broad-based booms have emerged toward the end of relatively long periods of expansion in global industrial activity especially in 1973 and 2000—and have ended with a subsequent downturn in activity.

"In contrast, the current boom started earlier in the cycle."

Rate cuts by the US Federal Reserve (money printing) to avert the dot com bubble has been primarily blamed for the current credit bubble in the US, though loose monetary policy also contributed to the original dot com bubble.

Economic analysts say if the US had allowed the credit bubble to burst during the dot com bubble the overall financial crises would not have become such a big problem today.

What Now?

US rate cuts create excess liquidity, especially in dollar pegged countries. The dollar also falls when money is printed to keep rates low.

This fires inflation in all dollar pegged countries.

Strong global growth especially in China and India has driven demand for energy and industrial commodities (but both China and India have surplus grain stocks) which normally have been expected to have been fulfilled by higher supplies.

There were also links between commodity markets such as oil and bio-fuels.

But latest financial conditions were also ripe for booms, IMF said "including U.S. dollar depreciation and low real interest rates."

"Some of these factors obviously played a role in earlier booms as well," IMF said.

"In the 1973 boom, for example, commodity prices were pushed up by the combination of very strong global growth and U.S. dollar depreciation."

Despite factors like China and India's growth which is now keeping demand strong, the bubble could run out of steam as it had earlier.

"Nonetheless, risks remain that the current boom, like its predecessors, eventually will be reversed as supply responses gain momentum, particularly in the food and metals sectors, where long-term supply elasticities should be substantial, albeit less so in energy," IMF said.