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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Commodities Bull Cycle Will Endure until 2014 to 2022

Commodities / Gold & Silver Nov 14, 2007 - 10:02 AM GMT

By: Gold_Investments

Commodities Gold
Gold was down $8.90 to $797 per ounce in New York yesterday and silver was down 18 cents to $14.55 per ounce.

In the Access market in New York it was aggressively sold off and fell to support at $790 whereupon it bounced sharply and rallied in Asia and European trading and is up to $810.50 per ounce at 1230 GMT.


Oil has strengthened by about a dollar and the dollar has made a tentative recovery. Support is near the double low at $790 per ounce and below that at the 50 day moving average at $765.

Gold has risen again in GBP and EUR. It is trading at £393 GBP (up from £388) and €552 EUR (up from €549).

The long term trend for gold remains up and while speculators may drive the price down further in the short term they are likely to be confronted by strong physical buying by long term asset diversifiers (individual, institutional and central bank) especially with safe haven demand increasing significantly.

The smart money is the first to enter the nascent bull market and then the institutional money in the early part of the second phase of the bull market. This is where we are now. The final phase will see mass participation and mania in the bull market and that is likely to be seen between 2012 and 2020.

This is especially the case as commodities follow long term cycles as per the chart below. These cycles are normally of 15 to 25 year duration. Since 1803, there have only been five major upmoves in commodity prices, lasting about 22 years on average. The sixth major upmove began in 2001 and it's coinciding with the war on terror, just as previous upmoves also coincided with wars. In times of war there is increased demand for commodities for provisions and armaments manufacturing, governments overspend and debase the currency and people protect themselves with hard tangible assets.

Given this strong historical precedent and the current macroeconomic and geopolitical risks, it is likely that the current rise in commodities, gold and silver should last for at least another 10 years and probably more.

Jim Rogers is widely known as one of the most insightful commodities bulls in the market today.
Rogers agrees that the commodities market runs in what might be called “supercycles”; 10-20 year stretches when pent-up demand meets the long lead times required to bring on new supply, sending prices steadily higher. With China, India, wider Asia and other emerging markets growing fast, he thinks the current commodities bull market has plenty of room to go.

Yesterday Rogers said that "on the basis of historical precedent", he expects that "the lifespan of the current commodities cycle will endure until 2014 to 2022."

Forex and Gold
The dollar has continued to show tentative signs of recovery but is largely flat against the EUR at 1.4684 (from 1.4588) and GBP at 2.067 (from 2.068).

Silver
Silver sold off sharply yesterday and gave up much of the gains of last week. Silver is trading at $14.91 at 1230 GMT.

PGMs
Platinum was trading at $1431/1436 (1230 GMT).
Spot palladium was trading at $368/374 an ounce (1230 GMT).

Oil
Light, sweet crude for December delivery rose to $92.19.
On Tuesday, the contract fell $3.45 to settle at $91.17 a barrel. Only last Thursday, crude prices rose to an intraday record of $98.62 a barrel and appeared headed for $100, driven by a mixture of concerns about falling domestic supplies and rising demand, the threat of disruptions to the oil flow from the Middle East and actual breaks in production from Nigeria, according to Associated Press.

But analysts have long theorised that oil was also lifted by speculative buying incited by the dollar's long decline. And while some of the market's fundamental concerns seemed to be ebbing Tuesday, some of the selling was likely due in part to a reversal of those speculative bets.

Whether Tuesday's sharp decline marks the beginning of the end of an oil bubble remains to be seen. Analysts say investors who still believe oil will rise above $100 will swoop in to "buy the dips" whenever oil prices fall.

Gold Investments
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