If you are a regular reader of this site – you know where I stand on commodities. As far as I am concerned, investing in commodities is the “low hanging fruit” on the pathway to Financial Freedom. If there was one thing that I remember for Econ 101 - it is that supply deficits with increasing demand leads to higher prices. Low and behold that is what we find in the commodity patch. Take a gander at a quote from Jim Puplava.Â
“For example in the past decade Asia has accounted for 50% of the increase in global demand for oil and 80 % of the demand for copper. Are we to believe that if the U.S. economy slows down, a new car owner in China will leave his car in the garage and ride his bicycle?”
Jim drives home the point with the following:
The perception in the financial markets is that a slowdown in the U.S. economy and a global economic slowdown will reduce demand for basic commodities. However, decades of neglect and supply deficits will take time and money to correct. This is a structural bull market, which is going to last for a lot longer than most experts predict. If China sells 2,000,000 automobiles this year and next that means there are going to be a lot more Chinese consuming larger amounts of gasoline. China’s economy may slowdown from its breathtaking rate of 11%. However, an 8-10% growth rate means more copper, more iron ore, more cement, more steel, and more gasoline consumption. Let us also not forget India, whose economy is growing at 9% per annum.
Remember Wall Street’s priority is to put the most money in their pockets. That happens by convincing Main Street to purchase stocks in which it is most heavily invested. Commodity related Exchange Traded Funds (i.e. GLD, GDX, OIH) are still relatively new, so there is little money to be made there by Wall Street. By the time Commodities truly become a bubble, Wall Street will be pumping it 24 hours per day – 7 days a week.
Take a read on Jim Puplava’s latest commentary – “Commodities: Bust or Boom?” It is a great read.
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