Commodities Super Cycle - Do you believe in it?

[RichKid]

Check out this link and see what you think, it's originally from the ASX frontpage by a UK mining 'expert': "Evy Hambro is one of the world's leading mining analysts. Evy recently gave a presentation on his outlook for global resources..."
http://www.boardroomradio.com/templates/event.jsp?c=311&e=769&m=wmp

Don't forget to use the slides to the right of the movie.

Basically more consolidations, demand continuing, supply tightening, mines take years to come online, prices will rise but not as much as recently, a few co's will control the bulk of supply in the main commodities and hence control prices and prevent the boom bust that has occurred before.

Only questions are what's the time frame, as nothing goes on forever (remember the Tech wreck?), and how do you take advantage of it? Also more but that's the main part of the thesis imo. This guy really sounds like a polished salesman, you'd walk out and buy shares in his co (GMI an ASX listed investment co).....except you'd be wiser and do your own research first.

 

[RichKid]

Re: Commodities Super Cycle- Do you believe in it?

An article on the sector: http://www.smh.com.au/news/business...surefire-winner/2005/12/30/1135915693222.html

 

[wayneL]

Re: Commodities Super Cycle- Do you believe in it?

There's certainly precedent for a commodities super cycle Rich.

I've been moving more and more into commodities trading, for several reasons, but one of which is the likelyhood of (if not an outright boom ) at least increased volatilty.

Another attraction is the non-correlated diversification of risk.

So yes, I'm a believer in the possibility, but don't mind whatever happens.

Cheers

 

[RichKid]

Re: Commodities Super Cycle- Do you believe in it?

There's certainly precedent for a commodities super cycle Rich.

I've been moving more and more into commodities trading, for several reasons, but one of which is the likelyhood of (if not an outright boom ) at least increased volatilty.

Another attraction is the non-correlated diversification of risk.

So yes, I'm a believer in the possibility, but don't mind whatever happens.

Cheers

Hi Wayne,

This is one area where it's interesting to watch analysts as they play catch up, the charts say one thing and the analyst 'models' say something very different. Perhaps they suffer the same psychological defects which crowds do when they think that prices can't go any higher (eg iron ore, gold, oil); once they finally catch up it's too late.

I think we're fortunate to be in a country like Australia atm as we have a lot of commodity talk in the press, some world class projects and exposure to some great local companies (not as much as in Canada though for juniors).

It's how you ride this that'll determine how profitable it is, there will be ups and downs. Some of the people I pay more attention to fundamentals wise are Doug Casey, Fat Prophets.....and (our very own) Smurf of ASF!!

 

[RichKid]

Re: Commodities Super Cycle- Do you believe in it?

Another article on the cycle, Access Economics seems to think we've only got another year or two in it, it quotes many forecasters but we all know how often they get it wrong. Still worth noting that there may be cycles within cycles, so we may see a dip before the next big move up, we need to re-assess this from time to time in my view to make sure we don't get too optimistic: http://www.smh.com.au/news/business...r-the-long-haul/2006/01/05/1136387573054.html

 

[michael_selway]

Re: Commodities Super Cycle- Do you believe in it?

Another article on the cycle, Access Economics seems to think we've only got another year or two in it, it quotes many forecasters but we all know how often they get it wrong. Still worth noting that there may be cycles within cycles, so we may see a dip before the next big move up, we need to re-assess this from time to time in my view to make sure we don't get too optimistic: http://www.smh.com.au/news/business...r-the-long-haul/2006/01/05/1136387573054.html

I agree and I do believe there will be a correction first

For Oil when the US/Euro/Asia Winter is over (and katrina/rita reocovers fully) we may see oil in the mid to low $US50s/barrel again. However "Peak" oil will be approaching soon, when and not if, some say within 5 yrs some say 30yrs. Good to have an Oil Company in your portfolio during this "correction" for the long haul.

Base Metals there will be a correction in 2008 i think (lasts maybe 1 or 2 yrs, taking Dow Jones/All Ords down with it), prices will probably halve from a peak in demand and supply grows rapidly. However long term it will start an uptrend again. Do u think Africa can be next resources cycle in the future like China now?

 

[RichKid]

Re: Commodities Super Cycle- Do you believe in it?

A very bullish piece from Alan Kohler from the ASX website- Investor's Update Newsletter 11Jan2006 (I've extracted the full article elsewhere on ASF, just do a search), just look at those 'valuations', maybe read as 'tips' or 'opinions':

The year ahead with Alan Kohler

Has Australia's golden run ended? After three years of beating the world by investing locally, is it time for investors to leave home? No, says Alan Kohler, publisher of independent investment newsletter, Eureka Report, and commentator with the ABC and John Fairfax. The Australian market is likely to keep producing good returns and to at least be a world-matcher, if not a world-beater (apart from the all-conquering Japanese sharemarket).

Not only that, there are three booms that have only just begun: resources, aged care and the Internet.

2005 ended the big debate among professional investors as to whether it is time to start shifting money into 'international equities'.

In my view there is no reason to run away from Australia and scatter your money around the rest of the world via managed funds that incur a charge. Yes, on one hand, Australian shares have had a fabulous few years and many are not cheap. On the other hand you know the companies - you shop in their stores and you buy their products - you can buy them with Australian dollars and you get Australian dollars when you sell them. There would have to be an attractive proposition somewhere else to offset those advantages.

And anyway, the difference in prospects for Australian companies, according to analysts, is too small to get to concerned about. The average one year earnings forecast for Australian firms is currently 11.4%; for the rest of the world it is 12.8%. And that difference, small as it is, will probably be accounted for by changes in interest rates: markets have priced in steady rates in Australian in 2006 and a 0.35% average increase in rates elsewhere in the world.

In other words, there is little reason not to expect another year of Australian out-performance in 2006, because of strong earnings growth, stable interest rates and, probably, a weak currency.

The only caveat I would place on that is Japan. It is likely that the Japanese will be the best performing market in 2006 just as it was in 2005.

But where exactly should you focus your investing in Australia in 2006? Factors to keep in mind include the impact that management fees will have on potential returns and risk reduction through diversification. Here are my picks for the three booms that have only just begun:

1. Resources

Mining and energy companies are currently valued for a decline in commodity prices next year. The extent of those can be judged from a research note put out last week by UBS, in which the analyst keyed current spot prices for commodities into the firm's valuation model instead of 2006 forecasts.

As a result of doing the valuation, BHP Billiton changed from $18.61 to $43.86 (the price now is around $23.30); the valuation of Rio Tinto doubled from $51.21 to $109.51 (current price around $69); the valuation of Zinifex goes from $3.74 to $11.09 (current price around $6.80).

This indicates a key decision for an investor to make, is whether commodity prices will, indeed fall next year. Do you believe Marc Faber's (he's the legendary Hong Kong based investor) hypothesis that real commodity prices are around 200 year lows and have begun a long term uptrend, or do you think the boom is close to ending because the Chinese miracle can't last? Personally I think it can last and I'm with Marc Faber.
...................

 

[nizar]

Re: Commodities Super Cycle- Do you believe in it?

hey richKid,

can u plz post a link to this article (alan kohler), this guy seems 2 b saying everything i wanna hear!

thanks

 

[michael_selway]

Re: Commodities Super Cycle- Do you believe in it?

hey richKid,

can u plz post a link to this article (alan kohler), this guy seems 2 b saying everything i wanna hear!

thanks

Riding the super cycle
By Stephen Bartholomeusz, The Age newspaper
December 20, 2005

THE biggest question mark hanging over 2006 and beyond isn't whether the commodity cycle remains "stronger for longer", but rather just how strong and long the cycle is.

It is evident that there is a China-inspired super cycle in commodities occurring, and that in most commodities there is an imbalance between demand and supply of such proportions that it may take years for the producers to close the gap.

In most of the exchange-traded commodities stocks are minimal, and across the board resource companies are grappling with the logistical issues associated with the attempts to rapidly boost production.

With massive consolidation of the resource sector having occurred in the past decade, the supply-side response to the soaring demand has been more disciplined and cautious than in past resources booms, which helps explain the extent of the price spikes that have occurred.

Despite the massive amount of investment occurring in new or expanded projects, no-one expects the commodity boom to end any time soon, despite expectations that China's growth rate will moderate.

The phenomenal growth in the size of China's economy means that economic growth could slow but demand for commodities would still increase in absolute terms.

The issue of how long the super cycle persists is a critical one for the producers and their investors. For the producers, reading the duration of the cycle will eventually produce big winners and losers from the matching of new capacity with the cycle, and the robustness of the projects themselves. If the cycle remains stronger for even longer, projects that might be considered marginal, on the basis of historical average prices, might well have paid for themselves before prices revert to the mean.

For investors, there is the dilemma of trying to understand whether there are more big gains to come from a continuation of the cycle, or whether they are buying in at the top. Over the next few years the position institutions take in relation to the cycle could be a major differentiator of returns.

The norm for resource companies and fund managers alike is to project the current price framework for the next two or three years and then revert to long-term average prices for their valuations.

If today's conditions persist for longer than than they factor into their models, however, the potential for underinvestment as a consequence of the massive divergence from historical norms is considerable.

UBS recently produced an interesting piece of research that compared its own forecasts of commodity prices and valuations of resource companies with the valuations that would be derived if today's spot prices were sustained.

While in some instances ”” oil, gold and nickel ”” its forecasts for 2006 were above the spot price. For most of the commodities the spot price was considerably higher than its forecast. Incidentally, the UBS house view is that the cycle could be sustained for five years, or more.

Valuing companies using today's spot prices is a purely theoretical exercise, as it assumes the super cycle will last not just longer, but forever. But it does provide an insight into the order of difference in values that could be created if prices take longer to retreat towards long-term averages than the resource companies and their shareholders are anticipating in their modelling.

UBS, for instance, is forecasting BHP Billiton will earn $US9.4 billion ($A12.6 billion) in 2006 and generate $US12 billion of cash flow. If current spot prices were applied to BHP production (large amounts of which are sold at contracted prices) it would earn $US10.33 billion and generate $US12.8 billion of cash flow.

Rio is forecast to earn $US6.4 billion and have cash flow of about $US7.1 billion. At spot prices it would make $US7.3 billion and generate $US7.98 billion of cash.

Applying the spot price to their 2007 results produces even more startling results, with BHP's earnings jumping nearly $US3 billion and Rio's rising by nearly $US2 billion.

When those numbers flow through to UBS's valuations of the resource companies' shares, the potential for misjudgments of value becomes obvious.

On UBS's 2005 forecasts, it valued BHP at $18.61. Feed the spot prices into the valuations and BHP would have been worth $43.86. Rio was valued by UBS at $51.21; at spot prices it would be valued at $109.51. Zinifex, now trading $6.21 a share, was valued on the basis of its forecast 2005 results at $3.74. At spot prices it would be worth $11.09 a share. Alumina, trading around $6.90 a share, would be worth $12.10 a share.

On the basis of the forecast numbers, BHP and Rio are selling at about 10 times their 2006 earnings, which isn't itself an aggressive treatment by the market and suggests a considerable degree of caution about the sustainability of the prices and profits. The low pay-out ratios ”” the resource heavyweights pay out less than 30 per cent of their earnings as dividends (they have both returned capital, which is a way of rewarding shareholders without making a long-term commitment to higher dividends) ”” suggest the companies are as conservative about their outlook as the market.

The UBS research, while theoretical ”” if prices were sustained at their spot levels indefinitely inflation levels would inevitably rise, with consequences that would probably undermine the cycle ”” does give a broad feel for the amount of value and/or the opportunity cost at stake in assessments of the duration of the China phenomenon on commodity prices.

 

[wayneL]

Re: Commodities Super Cycle- Do you believe in it?

Hi folks,

Rediscovered Jim Puplava's Financial Sense Newshour recently (thanks WaySolid )

If anyone is interested further in commodities, and in particular the commodities supercycle check out this interview with Jim Rogers on the topic:

http://www.financialsense.com/Experts/2005/Rogers.html

The commodities markets are more than just metals and energy. This interview also highlights the other commodities markets such as soybeans, pork bellies, orange juice, sugar, etc etc etc

Cheers

 

[Ann]

Re: Commodities Super Cycle- Do you believe in it?

Hi Guys,

I don't quite know where to put this link but this seems as good a place as any.

It is a link about the Supply Side of Mineral Economics.......

http://corporate.bmo.com/publications/basicPoints/default.asp?id=6197


Enjoy......

 

[michael_selway]

Re: Commodities Super Cycle- Do you believe in it?

Hi Guys,

I don't quite know where to put this link but this seems as good a place as any.

It is a link about the Supply Side of Mineral Economics.......

http://corporate.bmo.com/publications/basicPoints/default.asp?id=6197


Enjoy......

Hi Ann thanks, can u pls give us a bit of a summary and what u think?

thx

MS

 

[Ann]

Re: Commodities Super Cycle- Do you believe in it?

Hi Michael,

I found it a nice bit of light, interesting reading. I don't buy mining companies of any description so I only have a very limited interest in the commodities, other than the pleasure of drawing charts for others. A good way to offer totally unbiased charting by the way. However, being aware that there is a tremendous amount of interest in this subject, anything I find that may be of value to others, who do have a greater understanding, I try to make sure it is not missed but given a good home!

How was that for a cop out? :

 

[nizar]

Re: Commodities Super Cycle- Do you believe in it?

Hi Michael,

I found it a nice bit of light, interesting reading. I don't buy mining companies of any description so I only have a very limited interest in the commodities, other than the pleasure of drawing charts for others. A good way to offer totally unbiased charting by the way. However, being aware that there is a tremendous amount of interest in this subject, anything I find that may be of value to others, who do have a greater understanding, I try to make sure it is not missed but given a good home!

How was that for a cop out? :

Thanks for posting that link...

great stuff... bank of montreal...

merril lynch upgrading commodities prices... MS this is only a few paragraphs maybe u should try reading it instead of asking for a summary... : lol joke...

http://www.bloomberg.com/apps/news?pid=10000086&sid=aE5COv6.WH7g&refer=latin_america

ann u should seriously think of getting into some miners... my picks are wpl and bhp... wpl is a bit overpriced... but bhp looks good... oil+uranium means u cant go wrong in the long term....

 

[michael_selway]

Re: Commodities Super Cycle- Do you believe in it?

Thanks for posting that link...

great stuff... bank of montreal...

merril lynch upgrading commodities prices... MS this is only a few paragraphs maybe u should try reading it instead of asking for a summary... : lol joke...

http://www.bloomberg.com/apps/news?pid=10000086&sid=aE5COv6.WH7g&refer=latin_america

ann u should seriously think of getting into some miners... my picks are wpl and bhp... wpl is a bit overpriced... but bhp looks good... oil+uranium means u cant go wrong in the long term....

Thanks guys

The price of copper, used in pipes and wires, may average $2 a pound in 2006, 21 percent higher than a previous forecast, Merrill said. The metal has averaged $4,856.60 a ton, or $2.20 a pound, this year on the London Metal Exchange.

``Demand has surprised on the upside in key Chinese and Indian markets,'' said Binns. ``This has combined with supply bottleneck at the smelters to switch our small surpluses in 2006 into small deficits.''

Zinc, Thermal Coal

Zinc, used to protect steel from corrosion, may average $1 a pound, 43 percent more than a previous forecast, Merrill said. That compares with the average price of $2154.2 a ton, or 97.7 cents a pound, this year.

The securities firm also raised its forecast for aluminum, used in cars and planes, by 5 percent to $1.05 a pound for 2006. Aluminum has averaged $2,417.50 a ton, or $1.1 a pound this year.

Merrill Lynch also raised its forecasts for annual thermal coal prices to $48 a ton, from $43 a ton, due to rising rates on the spot market. Thermal coal is used to generate electricity.

``We believe the risks are for higher prices, with coal seen as the preferred source of power in Asia and Europe and with cement production picking up in Japan,'' Binns said. ``Supply continues to experience delays, higher costs and unavailability of truck tyres.''

Zinifex Ltd. and Oxiana Ltd. are expected to be the biggest beneficiaries of higher prices, Merrill said.

The brokerage raised its earnings forecast for Zinifex, the world's second-largest zinc producer, for fiscal 2006 by 50 percent to A$743 million ($552 million).

Oxiana, an Australian copper producer, will likely post 2006 profit of A$298 million, 55 percent higher than earlier predicted, Merrill said.

Merrill Lynch also revised its profit estimates for BHP Billiton and Rio Tinto Group, the world's largest and third- largest mining companies. It raised its fiscal 2006 profit forecasts for BHP by 7 percent to $9.9 billion, and for Rio by 8 percent to $6.6 billion.

 

[nizar]

Re: Commodities Super Cycle- Do you believe in it?

Boomtime for commodities

William R. Thomson
March 9, 2006

Roundtable Business Times Singapore
©2006 Singapore Press Holdings Limited

OVERVIEW

COMMODITY markets are bullish - and have been for at least five years. Are we near the end of the upward cycle, or is it just beginning? This week we bring together some of the best brains in the business to answer those questions and to tell investors where they should be putting their money if they want to profit from the commodities boom.

PARTICIPANTS in the roundtable

Moderator: Anthony Rowley, BT Tokyo Correspondent.

Panelists:

James ('Jim') Rogers, head of his own commodity investment firm, Rogers Holdings, and a global expert on commodities. He is a former co-investor with George Soros.

Marc Faber, investment adviser and publisher of the 'Gloom, Boom and Doom Report.'

William Thomson, chairman of Private Capital Ltd, Hong Kong and senior adviser to Franklin Templeton Institutional Hong Kong and Axiom Opportunities Fund, London.

Anthony Rowley: We're pleased and privileged to have world-renowned commodities expert Jim Rogers joining us today - along with two old friends and savants of the investment world, Marc Faber and William Thomson. A warm welcome to you all.

Jim, I know you have insisted that your two-year-old daughter, Happy, should become bilingual in English and Mandarin, because you believe Chinese is the language of the future - and also that you have already put her into commodities. Is that because you think commodities are the investment of the future?

Jim Rogers: I just wrote a whole book on the subject. Historically, every 25 or 30 years we've had a long multi-year bull market (in commodities) followed by a long multi-year bear market. In my view, we're now in a new bull market. If history is any guide, this bull market will last until sometime between 2014 and 2022. That is not a prediction - just a reflection of past historical cycles. Essentially (what is driving it) is the imbalance of supply and demand similar to imbalances that have recurred regularly for centuries.

Throughout history, there have been bull markets in raw materials every 20 to 30 years. Supply and demand regularly get out of balance, leading to recurring periods of rising (and declining) prices. Virtually no one has built an offshore drilling rig, or opened a lead mine, or developed a sugar plantation during this period. Quite the opposite; productive equipment has deteriorated, been cannibalised, or s********ped while other capacity has closed.

Raw materials should always be represented in any diversified portfolio. Stocks, bonds, cash and real estate do not provide sufficient representation of the world's economy, nor sufficient non-correlation to each other.

Anthony: Let's talk about the background to the current bull market in commodity prices, and where we see it going from here. Marc, what's your view?

Marc Faber: Commodities were in a more than 20-year bear market between 1980 and 2001. Since then, industrial commodity prices especially have risen sharply as the incremental demand from China shifted the demand curve to the right. However, inflation adjusted commodity prices are still very depressed. This would especially apply to the agricultural commodities.

Usually, commodity cycles, also known as Kondratieff cycles, last 45 to 60 years from peak to peak. Since the last peak was in 1980, I would expect this cycle, which began in 2001, to last until between 2025 and 2040.

William Thomson: Each decade seems to have an overwhelming investment theme. The Eighties were all about Japan and in the Nineties it was high-tech. I expect the 'Noughties' to be the decade for commodities. After a 20-year bear market from 1980 to 2000, commodities should enjoy a recovery period that should last at least 10 years and could extend to 20 years.

It is powered by the totally mind-blowing growth in demand that is coming from the world's emerging economies led by India and China. The industrialisation of these two population giants is leading to the greatest shift in global economic power since the industrialisation of first, Great Britain 200 years ago, followed by the United States 100 years ago.

To put this in perspective, in 1820 Asia represented about 40 per cent of world GDP. By 1950 it had fallen to 18 per cent and has since recovered to over 30 per cent. The Asian Development Bank and Harvard estimate that Asia's share of world GDP should be over 40 per cent again by 2020.

So, in fact, Asia is just in the process of reestablishing its historic place in the world economy. This is the vital underpinning to the commodity demand bull story. Supply inevitably lags in its response to these increased demands in the early years.

Anthony: Which commodities do you feel hold out the best promise for further price gains - and why?

Jim: I would be doing research in the agricultural area as this is where there may be new opportunities. Many of them (agricultural commodities) are still far, far below their all-time highs while the fundamentals are changing for the better.

William: My knowledge is of the energy and minerals markets and, as noted, I believe there is plenty of opportunity there in the coming years. The soft commodities have lagged but I suspect they will now play catch up. After all, there has been the same lack of investment in these assets for many years while demand grows in the emerging economies.

Institutional funds will also increasingly try to access these commodity markets as they seek to diversify away from overpriced equity and fixed income markets.

Marc: Grains are the most inexpensive commodities. They are at a 200-year low against oil. I also think that gold and silver are still very inexpensive, when compared to the US dollar and to the Dow Jones Industrial Average.

Anthony: Talking of that, Marc, how much further do you think gold, platinum and silver prices have to go in this cycle?

Marc: In your lifetime, I believe investors will be able to buy one Dow Jones Industrial Average with less than five ounces of gold. So, depending on how much money the US will print, gold will either outperform equities on the upside or decline less than equities in a bear market. My target is for gold prices to rise to between US$5,000 and US$10,000 in the next 10 years.

Anthony: Are you equally bullish on these metals, Jim?

Jim: In bull markets, nearly everything eventually goes to a new all-time high and usually multiples above the old all-time highs. Gold and silver should too. Platinum is already there, but if you adjust its old highs for inflation, it too might have further to go over the course of this long bull market. Ask me again in 2018.

William: Much depends on how the growing geopolitical dangers develop in the coming years. However, even without significant global disruptions, I have stated before that US$1,000 an ounce gold should be attainable and, if we have major problems with war or inflation, then US$2,000 to US$3,000 can be envisaged since it would only be the equivalent of US$860, the high in 1980, in today's money.

Along the same lines US$20 to US$30 silver and US$100 to US$150 oil seems possible over the next half decade. It could even be worse if we fall into a situation where nuclear weapons are being used.

 

[nizar]

Re: Commodities Super Cycle- Do you believe in it?

CONTINUES FROM ABOVE...

Anthony: All well and good, but commodity markets have been rather volatile lately, which may scare off some investors. What's behind this?

Jim: Nothing goes in one direction all the time. There are always corrections and consolidations in every bull and bear market in every asset class - especially in the long secular markets on which I try to focus. For example, in the long stock bull market from 1982 to the end of the 1990s, shares went down 40 per cent in 1987 and had other serious setbacks in 1989, 1990, 1994, 1997, 1998, etc, yet the secular trend was up. Things that shoot straight up for a while are especially prone to consolidations and need them to ensure the bull move lasts a long time.

William: Bull markets tend to run in phases moving from complete indifference or even revulsion to the class, as happened with commodities at the end of their 20-year bear markets around 2000, through disbelief as prices crawl off the floor amid early professional accumulation, and then a gradual recognition that circumstances have changed.

This, in turn, generates further speculative interest and flows both in the financial markets and real investment. Finally, the public is convinced that we are in a new perpetual bull market and a new way for everyman to secure his financial future is upon us as happened at the end of the dotcom, high-tech boom in the late 1990s as the last commodity bear market was finishing.

We have had two years of strong commodity markets, especially energy and minerals, on the back of surging demand from emerging economies and a recovery in the US with little or no increase in supply. The growing enthusiasm for the class has generated an over-bought situation short term and the need for a normal consolidation of prior price gains in the face of a maturing economic recovery in the US where the Fed has been increasing interest rates for over 18 months.

This is perfectly normal as the market digests the gains and attempts to assess supply and demand balances going forward. Geopolitical considerations will play an important role in this process as countries such as India and China attempt to assure future access to oil and other commodities in a less stable world where the US seems increasingly willing to pay any price to try and assert its hegemony over the Islamic world.

Once this period of digestion is over, then I expect prices to move up again. This could happen any time if the conflict between the US and Iran escalates in the coming weeks and months, as I fear it will.

Marc: As in other asset markets, approximately 20 per cent of the price gains can be attributed to speculative demand and not end-user demand. Speculators began to take some profits and, therefore, prices of aluminium, zinc and lead have come off by respectively 13 per cent, 15 per cent and 19 per cent from their highs. In addition, it is likely that industrial commodity prices underwent some kind of short squeeze recently - this especially for copper.

Anthony: How can individual or 'retail' investors best access these markets?

Jim: Academics, consultants, and banks have confirmed repeatedly that index investing outperforms active investing 80 per cent of the time year after year so stick with a good index. If you find a great active manager, give him your money and introduce him to me too. The chances we will find that manager early are very slim. If an investor knows a great deal about a commodity or commodities, he can invest himself after he has done a lot of homework.

Anthony: You have developed your own commodities index, the Rogers International Commodity Index. This is not an investment fund as such but it does provide investors with a way of gaining diversified exposure to the markets. Can you tell us a little more about it?

Jim: The Rogers International Commodities Index (RICI) was designed to meet the need for consistent investing in a broad-based international vehicle. Thirty-five commodities are represented in the RICI. This gives it breadth just as the S&P 500 is broader than the Dow Jones Industrials. International commodities are represented, whereas most other indices are regional or US-oriented. For example, other indices exclude rice, the staple food of a large percentage of the world. All commodities in the RICI are publicly traded on recognised exchanges to ensure ease of tracking and verification.

Anthony: Marc and Bill, how do you recommend accessing commodity markets?

Marc: For the individual investor, the easiest is to buy precious metals including gold, silver and platinum. There are certificates on other commodities but the costs associated with these certificates are fairly high. All commodities can be bought in the futures market and individuals could also buy shares of companies involved in oil, gold, uranium and plantations.

William: The investor's knowledge base will affect his chosen instruments. Some will want to invest directly in the producers such as the oil and mining majors, for instance, Exxon and BHP Billiton; some the juniors and the explorers while others will prefer to go through mutual funds and investment trusts. The more speculative might even try to invest directly in commodity futures - not that I am recommending they try it.

These are the traditional investment instruments. However, today we are fortunate in having others, especially exchange traded funds (ETFs), hedge funds and funds of hedge funds. Dozens of ETFs are available in the US and elsewhere. The number is expanding all the time. Some that are of interest just track the gold price and, shortly, silver. Another is the Goldman Sachs commodity index and yet another an index of the oil majors. They are an efficient, low cost way to invest on a trend.

Hedge funds and funds of hedge funds promise diversification and reduced volatility since they can go short as well as long and can invest over a variety of strategies, for instance, commodity trade finance, that are not available to the individual investor but promise steady above average returns. For some investors they will represent an important opportunity within a diversified portfolio.

Anthony: Any other comments, gentlemen, on investment in commodities?

Jim: The same as for every investment. Do nothing unless and until you have done a lot of homework. I might add that Singapore should be developing commodity markets of its own. I hope it will.

William: As with all investment themes I see commodities eventually going to excess levels, driven by speculative institutional funds. I also expect it to be a much more volatile ride than it has been to date.

Marc: International tensions are rising and nothing drives commodities as strongly upward as a war.

Anthony: And on that rather sobering note, we must end. Thank you all again for coming - and may your pickings be rich!

 

[michael_selway]

Re: Commodities Super Cycle- Do you believe in it?

Anthony: Which commodities do you feel hold out the best promise for further price gains - and why?

Marc: Grains are the most inexpensive commodities. They are at a 200-year low against oil. I also think that gold and silver are still very inexpensive, when compared to the US dollar and to the Dow Jones Industrial Average.

Anthony: Talking of that, Marc, how much further do you think gold, platinum and silver prices have to go in this cycle?

Marc: In your lifetime, I believe investors will be able to buy one Dow Jones Industrial Average with less than five ounces of gold. So, depending on how much money the US will print, gold will either outperform equities on the upside or decline less than equities in a bear market. My target is for gold prices to rise to between US$5,000 and US$10,000 in the next 10 years.

Anthony: Are you equally bullish on these metals, Jim?

Jim: In bull markets, nearly everything eventually goes to a new all-time high and usually multiples above the old all-time highs. Gold and silver should too. Platinum is already there, but if you adjust its old highs for inflation, it too might have further to go over the course of this long bull market. Ask me again in 2018.

William: Much depends on how the growing geopolitical dangers develop in the coming years. However, even without significant global disruptions, I have stated before that US$1,000 an ounce gold should be attainable and, if we have major problems with war or inflation, then US$2,000 to US$3,000 can be envisaged since it would only be the equivalent of US$860, the high in 1980, in today's money.

Along the same lines US$20 to US$30 silver and US$100 to US$150 oil seems possible over the next half decade. It could even be worse if we fall into a situation where nuclear weapons are being used.

hm they seem so bullish on Gold, but their time frames seem very long for those price forecasts

 

[kevo]

Re: Commodities Super Cycle- Do you believe in it?

CRB is 30% of its eventual highs. Gold will be 1000 +, Silver 20+. Copper $3.00 a pound, lead 2.00 a pound. I think lead, corn and sugar are the next big movers. Time to buy MMN, OXR and Bolinski Gold is monday. Correction is over. I got a few items at http://blog.kontentkonsult.com and www.kontentkonsult.com you guys might like to read. I most bullish on SSM and PDN. The uranium bull has just begun.

 

[michael_selway]

Re: Commodities Super Cycle- Do you believe in it?

CRB is 30% of its eventual highs. Gold will be 1000 +, Silver 20+. Copper $3.00 a pound, lead 2.00 a pound. I think lead, corn and sugar are the next big movers. Time to buy MMN, OXR and Bolinski Gold is monday. Correction is over. I got a few items at http://blog.kontentkonsult.com and www.kontentkonsult.com you guys might like to read. I most bullish on SSM and PDN. The uranium bull has just begun.

Hi may i ask why u think Copper/Lead will reach those prices? also whats the time frame? Also what does CRB mean?

Reason i ask is that LME supplies for those have been increasing in the last 12 months (supply exceeds demand)?