The record of price movement is outlined in the table and chart below. For each commodity, the table details year-to-date (YTD) %-age change, drop from 52-week high, and start of year to the 52-week high.
Oil has had the roughest ride falling 62% YTD, 75% from its 52-week high, and preceded by a rise of 53% to its 52-week high. This was followed by Copper, Platinum, and Natural Gas, which had a meteoric rise to its 52-week high of 83%.
Most of the commodities, save Gold, have behaved in kind, thanks to the long-only commodity indices like GSCI which enabled investors of all kinds to invest naked in long-only baskets of commodities. They all went up together, and they all came down together. Platinum and Silver, the other two precious metals dropped along with other commodities, while Gold resumed its dual status as favoured currency and store of value during periods of turmoil.
Commodities are indeed more volatile than stocks. When, and if, we see the return of expansionary and/or inflationary (or worse, hyper-inflationary) conditions, however, these will be a key asset class to allocate to. With all of the printing presses at the Fed whirring right now, some would say its inevitable.
The facts are that during this period in time, the only asset group to have its fundamentals unimpaired is commodities:
- Farmers can’t even get loans for fertilizer now.
- The supply of things is going to be in even worse shape coming out of this.
- Oil is crushed; it is below the cost of production in many places. It is below the cost of alternate sources of energy, so oil is going to make a huge comeback when it does go through the roof.
- The IEA recently came out with a study showing that the worlds reserves of oil are declining at the rate of 7% per year. You can do the arithmetic, the supply of everything is going down; oil and everything else; we’re going to have serious supply problems before too much longer. In 15 years there isn’t going to be any oil left unless somebody discovers a lot of oil quickly in accessible areas, and the price of energy has to go climb again.
- The fundamentals for General Motors are impaired, the fundamentals for Bank of America are impaired.
- The fundamentals for Zinc are improving, the fundamentals for cotton are improved.
Commodities will be the place to be if and when we come out of this crisis, but even if we don’t come out of it.
- In the 1970’s the economies were bad, but commodities went through the roof.
- In the 1930’s commodities were a much better place to be than stocks, because there was no supply.
- Gold will probably go much higher.
Platinum is more industrial, and certainly tied closely to the Auto industry; hen its time to buy Automobiles again, Platinum will be a spectacular play.
There are shortages, and then demand will suddenly come racing back, and there won’t be any inventories left; this is how economies have always evolved.
