Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21
The History of Bitcoin Hard Forks - 10th Apr 21
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21
Investing in Google Deep Mind AI 2021 (Alphabet) - 6th Apr 21
Which ETFs Will Benefit As A Stronger US Dollar Reacts To Global Market Concerns - 6th Apr 21
Staying Out of the Red: Financial Tips for Kent Homeowners - 6th Apr 21
Stock Market Pushing Higher - 6th Apr 21
Inflation Fears Rise on Biden’s $3.9 TRILLION in Deficit Spending - 6th Apr 21
Editing and Rendering Videos Whilst Background Crypto Mining Bitcoins with NiceHash, Davinci Resolve - 5th Apr 21
Why the Financial Gurus Are WRONG About Gold - 5th Apr 21
Will Biden’s Infrastructure Plan Rebuild Gold? - 5th Apr 21
Stocks All Time Highs and Gold Double Bottom - 5th Apr 21
All Tech Stocks Revolve Around This Disruptor - 5th Apr 21
Silver $100 Price Ahead - 4th Apr 21
Is Astra Zeneca Vaccine Safe? Risk of Blood Clots and What Side Effects During 8 Days After Jab - 4th Apr 21
Are Premium Bonds A Good Investment in 2021 vs Savings, AI Stocks and Housing Alternatives - 4th Apr 21
Penny Stocks Hit $2 Trillion - The Real Story Behind This "Road to Riches" Scheme - 4th Apr 21
Should Stock Markets Fear Inflation or Deflation? - 4th Apr 21
Dow Stock Market Trend Forecast 2021 - 3rd Apr 21
Gold Price Just Can’t Seem to Breakout - 3rd Apr 21
Stocks, Gold and the Troubling Yields - 3rd Apr 21
What can you buy with cryptocurrencies?- 3rd Apr 21
What a Long and Not so Strange Trip it’s Been for the Gold Mining Stocks - 2nd Apr 21
WD My Book DUO 28tb Unboxing - What Drives Inside the Enclosure, Reds or Blues Review - 2nd Apr 21
Markets, Mayhem and Elliott Waves - 2nd Apr 21
Gold And US Dollar Hegemony - 2nd Apr 21
What Biden’s Big Infrastructure Push Means for Silver Price - 2nd Apr 21
Stock Market Support Near $14,358 On Transportation Index Suggests Rally Will Continue - 2nd Apr 21
Crypto Mine Bitcoin With Your Gaming PC - How Much Profit after 3 Weeks with NiceHash, RTX 3080 GPU - 2nd Apr 21
UK Lockdowns Ending As Europe Continues to Die, Sweet Child O' Mine 2021 Post Pandemic Hope - 2nd Apr 21
A Climbing USDX Means Gold Investors Should Care - 1st Apr 21
How To Spot Market Boom and Bust Cycles - 1st Apr 21
What Could Slay the Stock & Gold Bulls - 1st Apr 21
Precious Metals Mining Stocks Setting Up For A Breakout Rally – Wait For Confirmation - 1st Apr 21
Fed: “We’re Not Going to Take This Punchbowl Away” - 1st Apr 21
Mining Bitcoin On My Desktop PC For 3 Weeks - How Much Crypto Profit Using RTX 3080 on NiceHash - 31st Mar 21
INFLATION - Wage Slaves vs Gold Owners - 31st Mar 21
Why It‘s Reasonable to Be Bullish Stocks and Gold - 31st Mar 21
How To Be Eligible For An E-Transfer Payday Loan? - 31st Mar 21
eXcentral Review – Trade CFDs with a Customer-Centric Broker - 31st Mar 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

How to Ride the Commodities Bull Market

Commodities / Investing 2009 Nov 03, 2009 - 05:50 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleMartin Hutchinson writes: Commodity prices have faltered in the last couple of weeks, and much of the “smart money” is saying the boom is over.

Don’t believe it.


As long as the world’s central banks keep interest rates at these very low levels, the speculative interest in commodities will be strong, and so will their prices. Since only minor central banks yet show signs of moving rates, the commodities bull market has further to run.

The commodities bull has already run a long way. Since Jan. 1, gold is up 20%, silver is up 50%, copper is up 100%, oil is up 110%, coal is up 90% and iron ore is up 60%. In a year of deep recession – with the exception of wimpy gold (which did not decline as much in 2008, because all the monetary “stimulus” made people fear inflation) – that’s a pretty good run.

The Key Catalysts

There are three reasons why commodity prices have been rising, and they’re all still true:

  • China and India continue their torrid growth.
  • Global stimulus plans are bullish for commodity prices
  • And hedge funds and other speculative investors are big commodities players.

Let’s examine each of these in more detail.

1. The “China Syndrome:” While the rest of the world has been mired in recession, China has had a pretty good year, and so has India. China’s third-quarter gross domestic product (GDP) rose 9.5% from the same period last year, and India is expected to post an increase of at least 6%.

That has caused demand for raw materials to soar, because lifting the 2.5 billion inhabitants of those countries out of poverty generally requires lots of goods you can drop on your foot.

For instance, China leapfrogged the United States this year to become the world’s largest automobile market, with sales of 11 million cars and light trucks. China and India show no sign of dropping back into recession. If anything, demand growth in those two countries is likely to continue, which in turn will put additional pressure on global raw materials supplies.

In general, we have plenty of commodities, but opening up new production takes lots of time and money, so rapid demand growth pushes up prices.

2. Money Talks: Stimulative global monetary policies have tended to push up the prices of all assets – but most notably commodities – in the last year. Those monetary policies aren’t just a U.S. manifestation. Japan has interest rates close to zero and has engaged in lots of “quantitative easing.” Britain has had even laxer monetary policies than the United States, with the Bank of England buying more than $300 billion of British government “gilts.” And China’s M3 money supply grew 28% in the last twelve months.

Monetary policy would have to get quite a lot tighter – with interest rates higher than the inflation rate – before it started choking off commodity prices, and there’s not much evidence of that. Yes, Australia and Norway both raised their base rates by a quarter percentage point in the past two weeks, but both countries are special cases, being commodity producers themselves (Norway produces oil, while Australia produces pretty much everything).

Maybe China is beginning to tighten a little, too. However, the other big boys aren’t. U.S. Federal Reserve Chairman Ben S. Bernanke has said rate increases are a long way off. Britain’s GDP was still falling in the third quarter, so that country won’t be tightening soon. And most of the Eurozone (Spain, Ireland and Greece, in particular) is suffering from huge real estate meltdowns, while other exporting countries worry that the euro is becoming too strong against the dollar – so euro rates won’t rise fast, either.

The bottom line here: Without higher interest rates, the commodity boom will continue.

3. Investors “Get Physical:” Hedge funds and other speculative investors are piling into commodities. What’s more, as I mentioned a couple of weeks ago, they aren’t just buying commodities futures; in many cases, the hedge funds are buying the physical commodities. Since the supply of most commodities is a small fraction of the volume of hedge funds outstanding, prices could shift quite sharply as supply disruptions occur.

Until China and India stop growing or world monetary policy tightens a lot, any blips in the commodities market are just that – blips.

Ways to Play the “Bubble”

There are a number of ways to play a commodities bubble. It’s probably smart not to restrict your buying to gold and oil alone, but to spread yourself among a number of sectors. Let’s take a look at some of the better plays right now available. They include the:

  • Powershares DB Base Metals ETF (NYSE: DBB): This exchange-traded fund tracks the Deutsche Bank AG (NYSE: DB) base metals index, thereby allowing you to invest directly in the price movements of non-precious metals. With a market capitalization of $387 million, this ETF is at least reasonably liquid and money has been flowing into it recently.
  • Vale SA (NYSE ADR: VALE): Brazil’s largest iron ore producer, and a key supplier to China’s exuberant infrastructure growth, Vale is a true play on the global commodities market. With a historical Price/Earnings (P/E) ratio of about 15, Vale will benefit hugely from further run-ups in the price of steel.
  • iShares Silver Trust (Amex: SLV): This fund invests directly in silver bullion, which has been left behind somewhat in its relationship to gold’s price rise – and which can be expected to move up as gold does, possibly by an even greater percentage.
  • Market Vectors Gold Miners ETF (NYSE: GDX): Gold miners benefit disproportionately from a rise in the price of gold because their production costs are fixed. This means that miners are a more leveraged way to play gold than the metal itself, particularly as surging speculative demand can increase mining companies’ P/E ratios.
  • Market Vectors Coal ETF (NYSE: KOL): China’s power supply is still coal-fired, and demand is soaring, hence global coal prices are likely to be pulled upwards by Chinese demand alone. KOL has a market capitalization of $283 million.

Money Morning/The Money Map Report

©2009 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules