Photo Credit: China Post
When Jim Rogers speaks, the market listens. Recently, he made very interesting comments surrounding the fundamentals of commodities. Even as the price for commodities such as oil, gold and silver have fallen steadily off their highs, he’s still bullish on the trend, even going as far to say the current bull market run in commodities may last for as long as 2020 based on historical cycles in the commodity industry.
Commodities as a hedge
Commodities are catching on a hedge against runaway inflation, which is affecting many parts of the world. The US is experiencing higher inflation as a result of lower Federal Funds rate, China has so much cash that it’s worried about higher prices from its $1.8 Trillion in foreign holdings, and the growth in emerging markets is largely due to inflationary factors.
A 20 year trend
There is a trend that is showing itself in the commodities cycle; people are wanting hard assets rather than paper currencies, and they are willing to pay a premium for this security. Recently gold traded at $867 per ounce, which is much higher than its $290 price in 2003. The shift from paper currencies to hard assets is also bringing up the price of metal backed currencies, such as the Swiss Franc, which has appreciated about 5% this year against the US dollar.
The boom in commodities may not end for another 12 years, but where does that leave the prices? Oil has hit its high of $147, gold briefly touched $1000 an ounce, and silver had its heyday over $20 per ounce. All three of these commodities are up at least 300% in just the past decade, a tribute to investors changing their minds on where to store their money. We do know one thing definitively; if inflation continues at this rate, commodities will not need much help appreciating.