It does indeed appear that commodities have turned the corner and may have bottomed out recently.
However given the state of the world it makes sense to consider which commodities are likely to perform better regardless of the state of the global economy. Read on to learn more…
By Justin Spittler
It’s official. The bear market in commodities is over…
If you’ve been reading the Dispatch, you know commodities have been in a crushing bear market for more than five years. The Bloomberg Commodity Index, which tracks 22 different commodities, has plunged 58% since April 2011.
In January, it hit its lowest level since 1999. Then, commodity prices took off.
According to the Financial Times, 15 out of the 22 commodities that make up the Bloomberg Commodity Index are up on the year. The price of oil is up 85% since February. Sugar is up 81% since August. Soybeans are up 33% since March.
The index is up 11%. It’s off to its best start to any year since 2008. And it’s up 21% since mid-January.
According to the popular definition, a bull market begins when a stock, commodity, or index rises 20% from a low. By that measure, commodities are “officially” in a bull market.
You can see how commodities have bottomed in the chart below:
• For months, we’ve been saying commodities were close to a bottom…
The 5-plus year bear market in commodities has slammed the world’s largest miners. According to accounting giant PricewaterhouseCoopers, the world’s 40 largest publicly traded miners lost a combined $27 billion last year.
To survive, commodity companies have cut spending to the bone. They laid off hundreds of thousands of workers. They sold parts of their business and abandoned projects. Some companies even cut their prized dividends.
• This is classic behavior of a bottom…
As you may know, commodities are cyclical. They go through big booms and busts. That’s because commodities like copper, natural gas, and oil have unique supply/demand dynamics.
For example, when oil prices get too low, many companies that produce oil go out of business. Also, when oil prices are cheap, folks are likely to use more of it. You’re likely to drive more when gasoline prices are cheap than when they’re expensive.
Eventually, prices get so low that demand exceeds supply. Prices bottom out and begin to rise. That’s when a commodity bear market turns into a commodity bull market.
When a commodity bull market gets going, the gains can be huge. During the 2002–2008 commodity bull market, the Bloomberg Commodity Index rose 172%. Shares of some of the world’s largest mining companies climbed many times higher. For example, Anglo American (AAL.L) returned 464% over the period. BHP Billiton Limited (BHP) returned 1,106%.
• The weak dollar has also given commodities a boost…
The U.S. Dollar Index has fallen 5% this year. This index tracks the dollar’s performance against major currencies like the euro and Japanese yen.
The dollar is the world’s most important currency. Most investors “think” in dollars. If you look up the price of sugar, corn, or gold, you’ll see its price in dollars.
So when the dollar loses value, it takes more dollars to buy the same amount of a commodity. That’s why a weak dollar is good for commodities.
• Still, there’s at least one reason to be skeptical about the rally in commodities…
Commodities are the “building blocks” of the global economy. And Dispatch readers know that economic growth has come to a standstill.
China, the world’s largest commodity consumer, is growing at its slowest pace since 1990. The U.S. is growing at its slowest pace since World War II. Japan’s economy hasn’t grown at all in two decades.
When the economy slows, developers build fewer homes, office buildings, and bridges. That means they use less copper, aluminum, steel, and other commodities.
• If you’re buying commodities today, make sure to buy ones that can do well while the economy struggles…
Some commodities depend more on economic growth than others. For example, lumber, which is used to build homes, benefits from the tailwind of a growing economy.
Soybean prices, on the other hand, can rise no matter how well the economy is doing. That’s because people have to eat no matter what’s happening with the economy.
So while the Bloomberg Commodity Index is up 11% this year, not every commodity has rallied. Natural gas prices are still down 9% on the year. Copper is down 3%. Meanwhile, soybean prices are up 34%
Although several Casey analysts have recommended commodity investments this year, they’ve been very selective about the types of commodities they recommend. This approach has paid off…
➢ Nick Giambruno, editor of Crisis Investing, used the crash in oil prices to pick shares of a world-class oil company. This stock is up 13% since March.
➢ E.B. Tucker, editor of The Casey Report, used the turnaround in commodities to buy two gold stocks. One of those is up 47% since March. The other is up 31% since April. He also recommended a silver stock that’s jumped 36% since April.
➢ Louis James, editor of International Speculator, is cashing in on the commodity rebound too. One of his stocks has surged 162% since September. Another is up 122% since July. A third is up 63% since March.
• Most investors would do well owning just gold…
As we often say, gold is real money. It’s preserved wealth for thousands of years because it has unique set of qualities: It’s durable, easy to transport, and easily divisible. It has intrinsic value that folks recognize around the world.
Like many commodities, gold “officially” entered a new bull market earlier this year. It’s in an uptrend, yet still cheap. It’s trading 34% below its 2011 high.
Unlike many commodities, gold can do well even if the economy is struggling. It’s a safe haven asset that’s protected wealth through history’s worst financial crises.
• Casey Research founder Doug Casey thinks we’re on the verge of a major financial crisis…
Doug says the coming crisis will be “much more severe, different, and longer lasting than what we saw in 2008 and 2009.” When it hits, “paper currencies will fall apart, as they have many times throughout history.”
Doug says this will spark a “true mania” in gold.
That’s why we encourage everyone own physical gold. Putting just 10% or 15% of your wealth in gold could help you avoid big losses during the next financial crisis.
• Finally, an important announcement from Jim Rickards…
Part of our job at Casey Research is to share interesting opportunities with you. That’s why we’re passing along this important news from our good friend Jim Rickards.
You’ve probably heard of Rickards. He’s one of the most respected analysts in the business. He’s a gold expert and author of The New Case for Gold.
Jim recently launched a new service to help readers take advantage of the coming gold boom. Because he’d like as many folks as possible to read his service, he’s arranged a special deal exclusive to Casey Research readers. You can learn more by watching this free video. In short, if you take Rickards up on his special offer today, he’ll send you two “G-series” gold coins in the mail.
Again, this deal is only for Casey Research readers. Click here for the full story.
• REMINDER: Casey Research founder Doug Casey will be in Poland next weekend…
Doug will be presenting at the “Alternative for Difficult Times” seminar in Warsaw on June 18 and 19. Nick Giambruno, editor of International Man, will be there too.
Doug and Nick will be there for the Polish launch of Doug’s classic book, Crisis Investing. They will also be presenting at a seminar discussing the impending global financial hurricane, the state of freedom around the world, and how you can protect yourself and even profit from these trends.
Chart of the Day
Gold has been one of the best places to put your money this year…
Today’s chart shows the performance of gold, commodities, bonds, U.S. stocks, and global stocks this year. You can see gold is up 17% this year. It’s crushed stocks, bonds, and even commodities as a group.
For most of this year, gold was the top-performing commodity. It was up more than 22% at one point. Then, it cooled off. It’s down more than 3% since late April.
We think gold is in the early innings of a major bull market. And, as we often say, bull markets don’t move in straight lines. It’s healthy for gold to take a “breather” after its red-hot start to the year.
If you’re looking to buy gold, we recommend using down days as buying opportunities. And again, for specifics on a coming opportunity in gold, we recommend you check out Jim Rickards’ short video right here.