Updating Our Commodities Charts
December 9, 2007
This week we update our charts of commodities prices denominated not in the increasingly worthless dollar, nor the euro, nor the yen, but in the supranational currency of mankind, gold. Gold’s value is basically stable over time, so prices denominated in gold are “real” prices, as opposed to the “nominal” prices denominated in floating (sinking) currencies. Also, you’ll remember from before that our charts only went up to December 2003. Now they’re updated to the latest month-end, November 2007. You’ll see that there isn’t too much of a rise thus far, at least in historical terms. Most of the nominal rise in commodities has been due to dollar devaluation. I think there is potential — by no means guaranteed — that commodities might enjoy a secular rise in real (gold) terms as well, leading to spectacular nominal gains. This is already very clear in the case of crude oil. Grains/softs, in particular, seem to have enormous upside potential, especially given recent difficulties regarding the weather (on the supply side) and more meat/dairy intensive diets in Asia (on the demand side).
Natural gas has been a junk commodity for a long time. I think it will become quite a bit more valuable in the near future, as North American natgas production is wheezing rather badly. Warm winters and cool summers has kept a lid on demand for now, so natgas is trading well below its heating-value parity with crude oil of about 6:1.
Indeed, in terms of btus, natgas is the cheapest compared to crude since the early 1990s!
In real terms, crude still hasn’t gone up all that much. It’s only about 30% higher than it was in the crude-plentiful 1960s. It’s cheaper than it was in 2000. I think it will go much higher in gold terms, and probably much, much higher in dollar terms.
The grains are, actually, still in the toilet. What if they crawl out of the toilet? They would go about TEN TIMES higher in gold terms, and who knows — twenty? thirty? — times higher in nominal terms. Lots of potential in grains.
Sugar is definitely in the toilet.
Sugar is close to hundred-year lows! Can you name another asset, anywhere in the world, which is a) useful and important, b) publicly traded and liquid, and c) at hundred year lows?
Copper is off its historical lows, but it’s not really up all that much. Could go higher.
Now, it should be said that as monetary inflation increases nominal prices, faster than the increase in nominal incomes, demand will tend to become impaired. Nobody can afford it. Thus, the more monetary inflation there is, the less real/gold prices may go up. This is part of the reason real/gold prices got so clobbered in the 1970s. However, we are starting to get to real production difficulties in a number of commodities, notably the fossil fuels but also gold and the agriculturals. We’ll just have to see how it works out.