Investors tend to forget that commodities are an extremely volatile asset class.

Price swings have always been violent and the recent surge lasting through July drew a huge amount of fast money from hedge funds and other institutions - which are all liquidating as I write this. Bank failures and bailouts have also pressured prices as liquidity-starved institutions make a run for hard cash.

But you must remember that commodities plunged in value in the mid-1970s en route to incredible all-time highs by January 1980. That’s happening again in 2008.

The CRB Index surged to an all-time high of 226.80 in September 1974 - at the height of the inflation squeeze, banking crisis and Arab oil embargo - and then commodities crashed to a new low of 175.90 by February 1975, a 22% plunge.

Gold prices, which Nixon set free in August 1971, soared to a high of US$184 an ounce in December 1974 based on the London monthly close. Prices then crashed all the way down to US$109 an ounce by August 1976. That’s a dizzying 41% drop.

Commodities can suffer a major bull market reversal, and that can make new investors nervous. Honestly, it wouldn’t be a surprise if commodities posted a negative year in 2008 after seven spectacular years of consecutive profits.

It is actually a positive development to see speculative money exiting the asset class because it takes policymakers’ attention away from high prices. Case in point: Earlier this summer Congress held special hearings to voice their concern over oil price manipulation. Now that prices are falling, Congress will once again turn a blind eye to the next run-up in the prices.