Is this the end for the commodities bull run – MoneyWeek

AsJohnAuthersputsitintheFT,“September11wasaneerilyinappropriatedateforadeclineintheglobalperceptionofgeopoliticalrisk。



Yesterday,thepriceofgold,regardedasthesafestofsafehavens,slidsharplybelow$600anounce。

ItfellintandemwiththepriceofoilnowtradingatitslowestlevelsinceMarch。

Theyellowmetal’sdeclinecameinspitethefactthatgoldjewellerydemandisatitshighesteverup12%toanall-timerecordof$11。

2bn。

MoneyWeekhasbeenkeenonbothyellowandblackgoldforalongtime。

Butarebothnowlosingtheirappeal?

Perhapstherealproblemisthatthemarketshaveanunusuallyrose-tintedviewofthefuture。

TheInternationalMonetaryFundhaswarnedthatthemarketsbelieveriskstotheglobaleconomyaresominuscule,that“ifashockoccurs,thescaleofthesurprisemeansmarketswouldprobablysuffer‘moreseverecorrections’thannormal,”saystheFT。

Peopleandatthemoment,especiallypeopleinthefinancialservicessectorbelievethegoodtimeswillcontinueforever。

Thebiginvestmentbanksarealreadyworryingaboutmanagingstaff’sbonusexpectationsthisyear。

TheFTagainreportsthat“mostCityfinancialworkersexpectbonusestobeatleast50%higherthisfinancialyear。

”Thatfollowsabumperseasonlastyear。

WithallthatimaginedmoneybeingspentacrosstheCity,it’slittlewonderthatLondonhousepriceshaveseensomethingofarevivalinrecentmonths。

Afterall,whyworryabouttakingoutaninterest-onlymortgagethissummerwhenyouknowyou’llbereceivingawhackinggreatchunkofcashatChristmastosticktowardsthecapitalrepayments?

Ofcourse,somewouldsuggestthatmakingconcreteplanstodayfortomorrow’sas-yetpurelytheoreticalpayriseisthesureststepontheroadtowrackandruin。

Butsuchold-fashionedthinkinghasnoplaceintoday’sapparentlyrisk-freeworld。

Infact,theentirenotionofriskseemstobeoffensivetotoday’soptimisticsensibilities。

Nowthatoilhasfallenforawholesixdays,themainstreampressisrushingtodeclaretheendofthecommodities‘bubble’,asthoughgladtoberidoftheinconvenienceofworryingaboutthesoaringpriceoftheworld’ssecond-mostimportantnaturalresource(afterwater–whichisinshortsupplytoo,thoughthat’sanotherstory(formoreonwhich,readhere:Howtoprofitfromtheworld’swatercrisis

It’salmostfunny。

TheoilpriceisstillsittingataroundsixtimeswhatabarrelofcrudecostbackinMarch1999,whentheEconomistprinteditsinfamous“Drowinginoil”cover,andsuggestedthatthepricecouldfallasfaras$5abarrel。

MuchoftheglobaloilsupplyisstilllargelyinthehandsofOpec,acartelwhosememberscomprisesomeoftheleastWestern-friendlygovernmentsontheplanet。

CommoditiestraderKevinKerrrightlypointsoutthatwhileOpechasheldproductionsteadyatthemoment,ifthere’sanysuggestionofoilbreachingthe$60abarrelmark,cutsarelikely。

Withwinterapproaching,thatcouldbebadtimingfortheUSandEurope。

Meanwhile,althoughtheLebanon-Israelconflicthaseasedupforthetimebeing,thesituationintheMiddleEastcaninnowaybedescribedashavingimprovedatanytangiblelevel。

IraqandAfghanistanarelumberingontowardsfurtherdisaster,andasMrKerrpointsout:“TheIranproblemisfarfromover,asmuchastheywouldliketheworldtothinkitis。



Soallinall,we’darguethatit’snotoilandgoldthatareoverpricedit’sriskthat’sunderpriced。

Thatmaycontinueforsometime–itmaynot。

Inanycase,aswereportedinMoneyMorningyesterday,goldcommentatorPaulvanEedenexpectsthepriceofgoldtorisemuchfurtherindollarterms(see:Whythegoldpriceissettodouble),soitprobablydoesn’treallymatterifyoubuyinalittlebeforethenextlegupbegins。

Ifyou’dliketotakeadvantageofthismis-pricingofriskbybuyingintogoldbeforethemarketsreturntotheirsenses,thencheckoutourinvestingingoldpageonthewebsiteformoreinformation:Investingingoldandpreciousmetals