Where & when will the commodity bull end? It's been on for 3-4 years now, is it nearing the end, or just the end of the beginning? Will we be looking back in 2015 and wondering how we could have failed to see it in advance? Or is the party gonna end soon?
What's interesting to me is that, despite the raging bull market, the performance of many of the top "commodity" hedge funds has been unimpressive at best. Take poor old John Henry for example. You would think these guys would have been raking it in the past 2 years. Whatsup with that?
The way I look at it is this. There was a 20+ year secular bear market. Is that going to end with a 3-4 year bull run? I don't think so. Such massive secular moves, once they reverse, normally herald a multi-year move in the other direction. Stocks went nowhere from 1969 to 1982, you then had a 18 year bull run interrupted by like 2 bear markets of 1 year duration. With commodities, supply takes a while to rebuild, and had collapsed during the bear period, especially the 90s. Also there are long-term growing demand factors in the rapid industrialisation of China, India, and Asia. Finally, sentiment is just focused on the short-term. Widespread popular opinion has still not woken up to the idea that commodities may go to stratospheric heights. If you say gold $1000 or oil $100, you get poo poohed. If you say gold $3000 or oil $300 you'd be considered a lunatic. IMO this has years to run. Right now is really the first time it's got any public attention at all. Give it a bit of a correction of a few months of stagnation, and people will have forgotten about it again. I want to see the gold price ticker on the walls of sports bars, Jerry Seinfeld advertising gold coins, petrol/gasoline rationing, and my parents asking for advice in how to invest in silver before I call an end to this one.
Hey Cutten. I don't consider gold and silver to be "commodities" per se'. Metal's don't need to be replenished. The world's supply of gold will be the same next month as it is today. After a gallon of Gasoline is used powering an engine, once a cup of Coffee is consumed with Sugar, once a soon to be dead Live Cattle feeds on an ear of Corn, those commodities are off the market so to speak. No one is eating silver. As your ET screen name recalls, frozen rivers can't impede the delivery of a silver short. Most buyers of metals are not institutional users of the metal itself but rather speculators who seek an asset that's immediately fungible for depreciating currencies. Gold is really an uber foreign exchange instrument. Gold traders have been saying, the dollar is shit....but so is the Pound Sterling, the Euro and the Yen. Gold bugs hold NO currency but rather a product that indebted currencies must bid for. Interesting how the metals rally has occurred during a phase of extreme low volatility in the major crosses. Except for metals the only commodity sector that's breaking out is energy. Food prices as reflected by meat, grain and soft futures are are really just chopping around except for Sugar which is on a multi year high. I agree that any number of weather and or monetary factors could pump food prices to the moon. On the other hand global population rates are simultaneously falling as economies improve. I'd rather own a bushel of soybeans than a share of INTC.
I generally agree. Softs, grains and ags have had much less of a move overall, and are far less pumped up with speculation than the crowded metals & energy sector. But this makes one think that they may be the next sector to go. IF the overall commodities move is secular, then softs/ags/grains should play catchup in the next couple of years. If not then yeah it's more of an energy supply/monetary situation. However, gold & silver are really the only "non-industrial" metals. Copper etc are much more typical commodities and have still gone up a lot. How many speculators are there in lead, zinc, aluminium, relative to end-users and suppliers?
Clearly there are industrial metals and I doubt aluminum for instance is being put up by specs. What can happen though is aluminum users know that aluminum should be x compared to the price of silver and if silver pops then other metals also rise on a "spread basis." On the food/grain note. The Midwest has had the dryest/warmest two year period in my four decades of life. Corn could EXPLODE if we have another summer like last year.