Commodities Super-Cycle Revisited

Back in January we wrote a post highlighting that money has now started exiting commodity funds for the first time in the past ten years. (See Commodities Super Cycle Reversing Course.) This event has proven quite significant, as can be seen by observing the price action of most non-agricultural commodities this year. Gold and Oil are down significantly year-to-date, despite continued calls for a rebound by commodity bulls.

It is quite clear that something fundamental has changed. For example Oil is still very much correlated with equities, but despite Friday's massive bout of short-covering, it tends to go down

The Gold Bubble has Burst

By now it is clear to everyone that there is nothing fundamentally "safe" in Gold or any other precious or industrial metals. As a non-productive asset its value is only based on expectations of future demand. There is nothing inherently wrong with that, if the demand was real - say for jewelery or industrial uses. However when an investment's value is only derived from expectation of even more investments chasing the same asset, it becomes pure speculation. Or to go to an extreme, even a Ponzi scheme.

FOMC Statement Punishes Gold, Boosts Stocks

The guardedly upbeat comments in the March FOMC report yesterday pushed equity markets to new multi-year highs. At the same time Gold bugs were disappointed by the lack of any mention of QE3. The statement starts with the following comments about the general economy:

Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. Labor market conditions have improved further

As discussed in a previous post, recently Gold has been trading as the anti-dollar, mostly swayed by the

Gold Fails to Recover from Bernanke Shock

In the end of January, the price of Gold received a large boost when the Fed extended its prediction of zero short term rates until the end of 2014 (a year longer than previously announced). The market started pricing in another round of quantitative easing but those hopes were dashed with Bernanke's testimony before Congress last week. After a fast 5% drop, inevitably bids came in, but the bounce was short-lived. Given the strength of the US economy (relative to other developed countries) it looks like the need for Gold as a hedge against monetary collapse is becoming less pronounced. It is

Even Soros is Bearish on Gold

Without making this too much of a victory lap, I was delighted to read Soros Sees Gold on Brink of Bear Market on bloomberg. While he has been wrong in the past, the words of one of the most famous contemporary investors can not be ignored. At the same time, most analysts are still bullish, which is good, as usually everyone being on the same side should be a cause for worry.