commodities will weaken

User Forum Topic
Submitted by powayseller on August 29, 2006 - 5:36pm

I've been saying for a while now that commodities prices will go down as we enter the recession. Gold is a different story.

I'm allowing myself 30 min. per day on piggington, since I just can't stay away. my time is just about up.

Anyway, I found this on Barry Ritholtz' site:

"One possible interpretation of that is the commodities market is anticipating cooling demand -- from the decrease in New Home construction, the slowing of the broader US economy, even a lessening of US purchases of goods made in China.

This is a chart worth watching over the short term as it could be the canary in the coal mine . . ."

The image uploader did not allow me to upload a .jpg file, so sorry, you'll have to follow the link above to see the chart.

Submitted by greekfire on August 29, 2006 - 9:45pm.

5-Year Commodities Chart

 

Submitted by powayseller on August 29, 2006 - 10:09pm.

hey, how did you do that? thanks...

Submitted by ljr on August 30, 2006 - 7:28am.

Gold is usually a proxy for commodities. Why do you believe it will be immune if other commodities fall due to a recession?

Submitted by powayseller on August 30, 2006 - 1:25pm.

Gold is linked to inflation, and is bought as a store of value, as investors buy it when they fear inflation rises. Central banks store gold too. But copper, nickel, lead, lumber, are in demand when the economy is heated, to make houses, cars, computers, batteries for cars; during recessions, as demand cools, their prices will drop.I never heard that gold is a proxy for commodities.

Submitted by ljr on August 30, 2006 - 6:58pm.

Gold is the premier commodity money. It's metal after all. I've studied gold until I've gotten sick of thinking about it. A few points stand out to me.

1. It's a small market and subject to wild swings caused by various interests trying to manipulate its price.

2. In the end gold isn't magic and has no intrinsic value. It has a lot of good money properties but money derives value from our faith in it. Period. A commodity that can be swung ten percent in a few days doesn't inspire faith. When the day comes that gold goes through the roof we may find that a gun and some lead are even more valuable. Gold, as I see it, is a hedge of last resort. I'd never put more than 10% of my net worth in it.

3. When a recession hits hard, economic activity declines (that's almost a tautology, I realize) and commodities take a big hit. Some argue that the producers of commodities are always free to take production off the market and keep the price high. I've never seen this in practice. Usually the producers are paying off loans on large capital expenditures. When their cash cow takes a dive they produce even more of it to maintain cash flow and avoid bankruptcy. I believe gold is just like the other commodities and will fall abruptly when the recession comes, right along with $50 oil and $1.50 copper.

4. Hedge funds make me very nervous regarding gold. They have the instincts and morals of a George Soros. When they pile on and then jump off gold they can easily make it swing 20%. That's great for them since they make money on volatility. For me it's sleepless nights. I don't like that kind of volatility in an investment I'm purchasing for safe haven.

5. Much as I hate to say it, just so long as this civilization endures, the gold standard will remain a barbarous relic. That's not to say governments won't keep a supply of gold around or that its price won't go way up. I'm just saying gold won't behave like the dollar or the euro. It will be Mr. Toad's mad ride.

6. If you believe we're heading for a bout of commodity inflation then gold is a good proxy. However, there are a lot of ways to hedge against commodity inflation using ETF's. DBC is an example.

7. Gold is also a good hedge against political instability though I think I'd prefer eight barrels of oil to an ounce of gold now that ETF's make that sort of thing possible.

I think we're heading for a severe recession and that a lot of loans are going to be written off as bad debt. I also, like Nouriel, think that when we sneeze, China is going to get the flu and that will put the kabosh on a lot of industrial activity. The way I read the blogleaves, they're ripe for a fall even without a recession.

Commodity demand can be inelastic but so is production. When you are running a billion dollar copper mine it's not easy to cut back production on a dime. Suddenly there is too much copper and pretty soon everyone is competing for the suddenly disappearing buyers. Gosh. That sounds familiar.

When dollar denominated debt goes bad it has the effect of reducing the number of dollars in circulation. That makes a dollar worth more. The fact that China and Japan have so much dollar denominated debt makes them all the more concerned that it not lose too much value. They don't love us but they do value their investments here. A run on the dollar would hurt them as much as it hurts us.

It's terribly unimaginative but I think short term government bonds are probably the safest investment. Never thought I'd hear myself say that.

One area where I agree with almost everyone is if you're going to invest in gold, own the metal. That's because I believe it's the hedge of last resort. By the time it comes into its own the financial structures we take for granted will be in disarray. ETF's will be history.

Don't take that wrong. I'm not predicting such a scenario but just saying that it's the scenario I'm hedging against when I buy gold.

Over the years I've run the gamut of emotions regarding gold. After all was said and done I concluded that gold, like any money substance, has value simply because we have faith in it. And for the most part we don't anymore. If we did it wouldn't have such volatility against the dollar.

I wish I believed in gold in the same way I wish I had faith in a benign and loving god. My life would be happier for it. Until reality smashed me in the teeth.

Submitted by powayseller on August 30, 2006 - 8:42pm.

ljr, I have to agree with your comments. If gold were a true safe haven, it wouldn't fluctuate so wildly. How safe is my "safe haven" when its value could be down 15% tomorrow? I've asked all these questions about gold. For that reason, I would be reluctant to put more than 5% of my money into gold.

I'm also concerned with ETFs; if the sort of economic collapse that necessitates gold comes to pass, perhaps ETFs would be unredeemable, due to cash flow problems, computer glitches, anything. But keeping it at home seems risky too, and I wouldn't want to store it somewhere else. It's funny, but when I had a mortgage and more debt than assets, I had fewer worries about money; it's true that the more money you have, the more you worry about losing it all.

Short term gov't bonds sound good for now, but if the dollar starts plummeting, I wouldn't like the bonds too much either.

Before anyone says I'm all doom and gloom, I am constantly on the look-out for a ray of sunshine on our economic horizon,because one day it will come, and I want to be one of the first to spot it.

Submitted by Wiley on August 30, 2006 - 9:47pm.

ljr,

Wanted to make a few comments in rebuttal to your remarks...

1. small market-Considering that the U.S. money supply has doubled during W. Bush's tenure, the fact it is a small market makes it even more compelling. What I'm saying is if you take the amount of money that was put into existence in this country since George Washington, that amount has been doubled in the last 10 years. Truly amazing. All those dollars cannot be drained and are always seeking best risk/return. This does not even speak to the Japan/US carry trade that also injected unprecidented amounts of liquidity.

2. Money is faith-Agree completely. A 1950 dollar is worth less then .12 cents now. See #1 and understand when its a good time not to have faith in the paper money. Gold has been money for 5000 years. Our current $ has existed for about 35 years and doesn't have a great track record for that short period.

3. Recessionary affects-My argument would be we may get more then a recession (gold positive last time), a dollar collapse (given the amount of debt, current account deficit, and inability to fix this in a declining market), above mentioned inflation, and recources being used up with mine production sidelined for 20 years causing delay in more production coming online to fulfill investment demand.

4. Hedge funds- completely agree. But if something is in a bull market all the manipulation in the world is not going to stop the primary trend from completing.

5. Golds behavior-has been and always will maintain value. Unfortunately there isn't a paper money in history that has ever survived. Paper money is political, gold is not. Paper money is created out of debt, god is not. If paper money is so great why do the banks keep tons of it? Doesn't make any sense.

6. ETF's-with the amount of corruption being announced almost daily in the financial world why trust them with your only real insurance against instability. The London Metal Exchange defaulted on their nickel contract just the other day.

Defaulted debt does not have the affect of reducing dollars in circulation. That is an old wives tale. Where did the money go that was lent?

Apparently some people do have faith in gold. It has outperformed the dow the last six years.

My feelings are basically that paper assets have been in a bull market the last 20 years. Commodities a bear mkt the last 20. That is reversing as we speak. Don't believe me look at the trend of the US dollar index and a gold chart.

Obviously to each his own but you said you've thoroughly researched gold which I find interesting that your not a believer in this climate. Have you ever read 'Creature of Jekyll Island" ?

Submitted by ljr on August 30, 2006 - 10:37pm.

I purchased my home here in Fallbrook back in 1997 for not much money. It's an owner built adobe with open beam ceiling sitting on two acres. Every wall in it is adobe. In the summer it stays cool and in the winter it stays pretty warm.

I've watched its price go up and now I'm watching its price go back down. But, truth be known, I don't care that much. It's home to me and it grounds my existence. I've paid it off and burnt the mortgage, so to speak. I have a HELOC but it sits there for emergencies so I won't have to reach into retirement money.

There have been times in the last year when I wondered if I wouldn't be better off selling the place but in the end it came back to how I want to live. Every day here I get value. When I want to build a carport I don't have to ask the landlord if it's OK. When a buddy brings over 20 cu. yds. of earth and piles it up in my front yard I can leave it for a year if I want to waiting to figure out what I want to do. I value those liberties.

I know just what you mean about money. It's a constant source of concern - how to preserve its spending power. I'm risk averse and completely aware that the guy with the deepest pockets usually wins at the gambling table. My pockets are anything but deep. So what does one do? I don't know. Wish I did.

Gloom and doom is a downer but that doesn't mean you're wrong.

Philip Dick, the Sci Fi author, said he liked to write about times of great social disintegration because that's when we humans come back to our real roots of adaptability and ingenuity.

I don't see how anyone can look at our society and say, "Wow! This is a great way to live." We need to change and we will change - it will be forced upon us. We need to keep in mind that the change is necessary and resist the temptation to think back on these times as the "good ole days" though it may seem that way. We shall pay the price for not being capable of effective collective self-governance.

You commented earlier about raising your kids to be self-sufficient, curious, self-enabled and self-entertained. Now there's real wealth. Hat's off to you. When I read that I realized you're not gloom and doom at all. You're a person with a stake in the future looking at a scary time in history with the good sense to be frightened while taking time to bequeath traits of successful living for adverse times to your kids. That is core optimism in my book.

Marshall McLuhan had a saying I really like and agree with:

"It is the business of life to be dangerous."

I find your posts insightful and well-written. Don't know where you find the time to participate as much as you do but I'm glad for it.

Submitted by qcomer on September 12, 2006 - 3:00am.

So what do people think of the latest declines in oil price and the corresponding hit seen on stock prices of oil companies? Did anyone see oil going below $65 and COP going below $60? What are the oil bulls like zeal saying and I would be interested to know how folks think the drop in oil prices will work for other equities.

I think if commodity prices keep dropping, we may well enter a state of deflation. With real estate going bust and recession on the horizon, there is not much support for oil prices to hold up barring geo-political tensions. The argument for peak oil seem to be losing ground as the latest discovery of the oil reserve by Chevron indciates and as production from oil sands become more cost efficient and OPEC reduces production to support oil prices. As per Fed, the biggest concern for inflation has been high energy prices. If oil drops and economy slows to snail pace due to housing then we may as well enter a cycle of deflation where comodities, housing and equities will all lose value.

However, as per previous experiences, our Fed seems to be more capable of handling deflation than inflation. Maybe they will come to the rescue again by cutting rates drastically. What do folsk think?

Submitted by powayseller on September 12, 2006 - 11:19am.

The government says oil will go back to $70 for most of the year

I am disappointed in Zeal. It just goes to show that every trader has a good and a bad run, and Zeal's winning streak is definitely running out. They rode the commodity bull, but once that ended, so did their good calls.

Submitted by jg on September 12, 2006 - 12:38pm.

Commodities will continue to weaken for two reasons: (1) demand is falling off due to slowed growth in the economy and (2) supply has increased due to high prices over the last few years. Oil prices will continue to fall due to (1) and (2).

Short-term, gold and the stock market bounce up and down due to reaction to news here and there. However, long-term, the prognosis for gold is awesome, if you believe folks will move out of the U.S. dollar to something safer.

Why will folks move out of the U.S. dollar?

1. The supply of dollars in foreigners' hands continues to grow strongly (see today's trade deficit figures).

2. But, with the increased supply of dollars, the value of the dollar continues to decrease: (http://www.research.stlouisfed.org/fred2/series/DTWEXB?&cid=105

3.  Japan is already undwinding its supply of U.S. dollars: http://www.treas.gov/tic/mfh.txt

4.  With oil prices falling, we'll see purchase of U.S. Treasuries by the Middle Easterners fall off; only the strong purchase of U.S. Treasuries by MEs (as someone else explained, U.K. is where the sheikhs bank) has kept prices for Treasuries high.

5.  When demand for Treasuries falls off, the Dept. of Treasury will have to offer high rates on Treasuries to keep buyers coming.

6.  The high rates of U.S. Treasuries will increase rates that corporations must pay on commercial paper and bonds, otherwise investors will purchase risk-free, high yielding Treasuries.

7.  High interest rates broadly will kill demand for homes, cars, investment, etc.

8.  Foreigners will exit the dollar-denominated investments en masse, due to lack of confidence that borrowers will be able to repay loans/make attractive returns on equity.

9.  The glut of freed dollars (investors turn in Treasuries for dollars) or printed dollars (the Treasury can find fewer buyers to finance the federal deficit, so it cranks up the printing press) will result in horrid inflation.

10.  Prices go up, wages go up, but not as fast; thus, purchasing power falls, demand falls, then tanks, as folks wait to buy homes, cars, etc. in the expectation that prices will fall further .  That is deflation (same volume of money x slower velocity).

When folks exit Treasuries and U.S. corporate stocks and bonds, where will they go?  Swiss Francs are nice, but gold is better.

Submitted by heavyd on September 15, 2006 - 1:27pm.

As someone who works at a hedge fund, I take some offense to the comments about hedge funds and George Soros. I can think of no other private individual who has done more to promote democracy and clean government in places like Russia, Czechoslovakia, Georgia, Hungary, and South Africa. Likewise, prior to Gates' and Buffet's recent announcements, I can't think of any living philanthropist who has given away a greater percentage of his fortune (ca $5bn at last count). As an industry hedge funds are publicity shy, which is too bad considering what a positive force they are in US philanthropy. Bottom line is, if you don't like risk, stay away from risky assets like stocks, currencies, commodities, and real estate.

Submitted by Chris J on September 15, 2006 - 5:24pm.

Chris Johnston

What comments about Soros have been made in this blog, I must have missed them?

Submitted by powayseller on September 15, 2006 - 6:28pm.

vrudny, great analysis! Can you copy the WSJ article, since it's subscriber only? Now that oil prices are dropping, we'll see a big reduction in UK purchase of treasuries. The late September auctions should be at higher rates. What about euros? I like gold, but after seeing its high volatility, I am getting more nervous about buying gold. How safe is my money when its value can fluctuate by 20% within a few weeks? That certainly does NOT inspire confidence.

Submitted by Chris J on September 15, 2006 - 7:05pm.

Chris Johnston

PW - remember what I wrote about inflation and it's effect on gold. Notice how the dollar has gone sideways to up during this big drop in gold, yet inflation has gone down. This is more proof of the relationship I have explained to you.

Submitted by rseiser on September 15, 2006 - 11:14pm.

heavyd and vrudny,
I have not met Soros, but from what he writes I have good impression. At least he is interested in the scheme of things and not just the money. The same for hedge-funds in general. All hedge-fund managers (or even some venture capitalists) I met were always nice people. Originally I thought they must be arrogant and cut-throat, keeping all the secrets to themselves, but not at all. They were all very rational thinkers, and well interested to share their views (since it helps them if other people join the particular trade). I would almost say that some of them are heros, since they foster good economics, taking money from the crooked companies and investing it in the productive ones. What's better in life than stand up for the right thing and make money too.

Submitted by technovelist on September 18, 2006 - 5:05am.

I like gold, but after seeing its high volatility, I am getting more nervous about buying gold. How safe is my money when its value can fluctuate by 20% within a few weeks? That certainly does NOT inspire confidence.

PS, I thought you were waiting impatiently for a big drop in gold so you could buy it cheaper, but now you aren't buying because there was a big drop?

Gold isn't for wimps. It is highly manipulated by governments precisely because they want to scare people into sticking with a "safe" asset: namely, their currencies, which they can print at will.

So why buy gold if it is manipulated? For the same reason that governments don't want you to buy it: they can't print it. Thus, over the long term it will go up in price in all fiat currencies. The more they manipulate the price lower, the faster it is purchased by strong hands who can't be scared off. Eventually, there won't be any more physical gold available to be used in the manipulation, and then the price will go sky-high.

In other words, sudden drops are a gift to the strong buyer. But DON'T USE MARGIN OR ANY OTHER KIND OF DEBT. If you do, you will get killed by these shakeouts. If you don't, they can't shake you out.

Submitted by powayseller on September 18, 2006 - 7:59am.

I still plan to buy gold, but the volatility makes me question my sanity. How do you think the government is manipulating gold? You think they are releasing more gold from the vaults to bring down the price?

Since gold is linked to inflation, and high liquidity/M3 is causing more inflation, gold should keep rising.

Submitted by technovelist on September 18, 2006 - 9:34am.

A number of governments are manipulating gold by selling it from their central bank vaults and by backing up "private" investment bankers who are selling it short in the futures market, which can easily knock out weak longs. However, very time they knock the price down, Far-eastern and Mid-eastern buyers who want physical gold see it as a bargain and step up to buy. Unlike the currency markets, no one can print gold. Thus, they have to come up with physical gold to satisfy the physical buyers, and there is a finite supply of physical gold. At some point, the central banks will stop selling either because they don't want to let go their final tons or because they are completely out. At that time, the price will soar.

Submitted by lewman on September 18, 2006 - 11:23am.

If you fear the volatility of gold, one way to do it is to buy options on gold stocks. This way you can invest with a set amount (a small portion of the amount you are willing to lose), then go away and not have to worry about the ups and downs in between.

Submitted by lu on September 18, 2006 - 5:02pm.

Here's a pick.

Disclosure: I don't own any NEM shares. But I'm thinking about buying some if GLD doesn't break down to the point where Chris Johnston recommended selling. ($570 was it?) :)


http://hipegg.blogspot.com/2006/05/newmont-mining-still-shining.html


http://hipegg.blogspot.com/2006/08/newmont-mining-corp.html


http://hipegg.blogspot.com/2006/09/newmont-mining.html

Submitted by lewman on September 18, 2006 - 8:22pm.

Lu,

Chris and I had a discussion on this $570 call on his blog. You may want to check it out. http://www.blogger.com/comment.g?blogID=...

I tend to think that it's closer to a mid 1970s type correction as I believe it is a correction in a secular bull market, rather than a end-of-the-game (like 1980) or a bounce during a secular bear (like 86 and 2000). Whether it'll turn into a 1975-type 50%+ correction depends largely on inflation. So if you think Ben has at least temporarily tamed the inflation beast then brace yourself for a larger correction. This is one fundamental call that for every person who believes so you can find one that doesn't, and chances are they both make sense.

Submitted by ybc on September 18, 2006 - 8:28pm.

Some Commodities Funds Pull Back
As the Run-Up Begins to Lose Energy
By SHEFALI ANAND
September 15, 2006; Page C1

Some of the hottest mutual funds of the past year -- ones that invest in commodities like oil and natural gas -- are starting to take it on the chin.

In the past month, natural-resources and energy funds as a group have lost 6.7% of their value, according to tracking company Morningstar Inc. That has erased a big chunk of their gains for the year: Overall, they're up only 2.6% year to date. For comparison, the broad Standard & Poor's 500-stock index is up 5.6% year to date through Sept. 13.

In the short term, the steep declines in commodities funds is bad news for mutual-fund investors, given that so many people piled into these funds in the past few months, which means they missed much of the run-up. Indeed, many investors are still putting their money into these funds. For instance, the $12.18 billion Pimco CommodityRealReturn Strategy fund gained more than $100 million from the start of the year through Aug. 31. Portfolio manager John Brynjolfsson describes the fund's growth in the past few years as "astronomical."

Commodities prices are famously volatile -- oil prices can soar on Mideast tensions; gold tumbles when inflation worries ease -- so they easily could swing back again. And there are a few relatively bright spots. Funds focusing on gold and precious metals are still up 16% since the start of the year, even though they have fallen back a bit recently.

But other important assets are in sharp reversal. Just yesterday, natural-gas prices fell 10% to their lowest close in two years, on news the Energy Department has bigger-than-expected natural-gas inventories. Overall, prices are down 68% from a peak in December.

That is just one of several reasons why energy-heavy funds have been hit particularly hard. After touching a high of about $77 a barrel in July this year, oil closed at $63.22 yesterday, partly due to high inventories of oil in the U.S.

The price swings hammer home the fact that funds like these are best used as a way to diversify a portfolio, but not as a core holding. The advantage of commodities is that their prices generally don't move in sync with stock or bond prices -- and thus, a modest holding of commodities in a portfolio can stabilize the portfolio's returns over the long term.

Investors already in these funds shouldn't panic. However, investors who have held the funds for a few years might take this as an opportunity to trim back those positions if the funds have appreciated significantly since they were purchased.

For people who have sat out the commodities run-up, now might not be an auspicious time to jump in. The best strategy is to put only small amounts of money into funds like these, over an extended period of time, rather than try to guess whether or not the market has peaked or hit bottom.

With the sharp jump in oil prices over the past year or so, "I'd be hesitant to even start initiating that piece now," says Scott Greenbaum, a fee-only financial adviser based in New York.

Commodities can move in long cycles. For instance, gold prices went into a 20-year bear market after peaking in the 1980s, and picked up only during the past few years. Fears about inflation, terrorism and the possibility of a weakening dollar have been driving its price.

The jury is still out about whether the rise in commodity prices is near its peak, though some economists think so. Earlier this month, Morgan Stanley's chief economist, Stephen Roach, said that "the mega-run for commodities has run its course."

Others think the price retreat of the past month or so is a temporary blip. Robert Shearer, portfolio manager for the Merrill Lynch Natural Resources Trust fund, says the current decline in price of oil is one of about five downdrafts since 2005. "We've not seen a fundamental change in the supply and demand," says Mr. Shearer, who is bullish on the long-term prospects of oil. His fund has about 80% of its $418 million in stocks of companies that work in energy-related fields, such as exploring, drilling or refining natural gas or oil.

Natural-resources stock funds are distinctly different from some funds that include the word "commodity" or "real assets" in their name, as these commodity funds don't buy stocks of companies. Instead, they buy complex financial instruments called "derivatives" to mimic a broad commodity index. For instance, the Pimco fund attempts to track the performance of the Dow Jones-AIG Commodity Total Return Index, which is made up of 19 commodities including oil, gold and some less-snazzy ones like soybeans and live cattle.

While funds like these are less dependent on one particular kind of commodity -- making them more diversified -- investors should note that some can trigger higher taxes. The Pimco fund, for instance, pays part of its yield to investors in the form of ordinary income, which is charged at an individual's income-tax rate, which can be higher than other rates.

The fund's manager, Mr. Brynjolfsson, believes the bull market in commodities is "alive and well," but points out that a lot depends on the broad economy. "If we were to go into a recession or a slowdown, commodities would likely fall further," he says.

On the other hand, if inflation were to accelerate, or even worse, the economy were to experience so-called stagflation -- a situation with relatively high inflation but stagnant economic growth -- commodities would be among the few sectors that would do well, he says. The Pimco fund is down 5.5% year to date and is negative 3.3% for the past 12 months, but it is up about 15% a year for the three years ended Sept. 13, according to Morningstar.

"Hopefully, all commodity investors are investing with a long-term view," says Mr. Brynjolfsson.

Submitted by rseiser on September 18, 2006 - 10:54pm.

After reading Jim Rogers' book Hot Commodities I have a few things to add regarding our discussion about China keeping up commodity prices. He makes two points.
His first one is that during a commodities bull-market most commodities go up simply because their supply/demand imbalances, which take many years to correct. In the 1970s everything went up, even though the economy was slowing. I also want to insert here that many commodities are interconnected, so when oil rises, most commodities that need oil to be produced will of course rise too.
His second point is that China will clearly have a hickup, and a recession will put a dent into consumption and commodities prices (like we discussed before). But the trend will continue, and when some countries recover it will be back to renewed consumption outpacing supply. This would also be a perfect example why not all commodities rise exactly in parallel. Sometimes the energies, industrial metals, precious metals, or agricultural commodities will surge.
We will see in this current correction, if it is true and new commodities emerge as temporary leaders.

Submitted by qcomer on September 19, 2006 - 2:49pm.

The gold bugs basically love conspiracy theories and their complaints that central banks are keeping gold prices "artificially" low is another crack pot theory. They didn't complain when speculative hedge fund buying was forcing gold prices to actually "artificially" moving gold prices up through the roof hitting 730, without any fundamentals backing them. There is no consipracy theory but basic fundamentals that Gold had too much speculative money in it that is now leaving and inflation is coming down thus putting fundamental pressure on gold prices. I cannot understand people here who expect housing prices to decline 50-70% and still expect huge inflation in the coming years. Such huge declines will kill economy, kill commodity prices and reduce inflation (price appreciation not money supply) and barring a dollar collapse I don't see gold going up. I will use gold for diversifying my portfolio though (5%).

As for oil prices, I said so when people were posting $100 oil threads that there is too much speculative money in oil that is going to run away (geo-political situation is ok, a clean hurricane season). I think we are going to run into a transitionary period where oil prices will go down to $55-65 range. If that range is broken then it will go to $40 until the Asian economies can create a domestic consumer maket.

Commodity bulls miss this very importaant point that China/Japanese economies are extremely export dependent right now and it will take few years before they can sustain their growth by domestic consumption. Commodity bulls keep repeating their pet sentence "Its a correction since nothing has changed in supply and demand" yet they know deep down that commodities demand is diminishing because of the economic slowdown expected in the biggest of world economies and the lack of an alternative consumer to replace that demand. I am keeping an eye on Japanese and Asian consumer and their retail prices as I think they will indicate the next time commodities will start going up again.

Submitted by rseiser on September 19, 2006 - 5:54pm.

I think gold is more of a hedge in case the 50-70% drop in housing doesn't happen. This kind of drop would be such a disaster that it is likely that the government will print money and try to limit it to a 30% drop. This would boost gold by a very substantial amount. Certainly worth the chances, when compared to the alternatives.

Submitted by Currrent oilprices on January 19, 2012 - 11:34pm.

The risk of oil prices rising in 2012 is increasing amid the
threat of supply disruptions and shrinking spare capacity in
the Organization of Petroleum Exporting Countries, according
to Goldman Sachs Group Inc.“We continue to see a strong case
for crude oil fundamentals tightening further in 2012,” the
bank said in a research note today. Current oil use is so wide
that it has become the major fuel worldwide.

Current Oil Prices

Submitted by scaredyclassic on January 20, 2012 - 9:08am.

Who are these people. And why do comments from five years ago seem dated?

Vermin supreme in 2012!

Love america more!

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.