In the Eye of the Commodity Bull Market

Markets in the US “Ummed” and “Ahhed” yesterday. Shortly after 11am, the Dow had “Ummed” its way up about half a percent. By close, it had “Ahhed” back to where it finished the day before. Despite all the moans and groans, it was a rather anticlimactic day for investors.

Meanwhile, gold lost a tad, oil fell a smidge. Oh, and the Macedonian MBI 10 Index inched lower by 0.23%.

Details, details, details…

As always, it is the longer-term trends that interest us here. Lacking the necessary patience and discipline to trade the daily noise, we instead try to make out tiny figures on a more distant horizon. What are they doing, we wonder. And what can they tell us about where we are heading?

Widening the scope a little we see that, although gold was down for the day yesterday, for instance, it is up for the month…considerably so. It is also more expensive than it was a year ago…and five years ago…and a decade ago. Before adjusting for inflation, the barbarous relic is higher than it has ever been. In real terms, however, it is barely half the way there. There’s plenty of room on either side, in other words…but the longer-term trend is clear…clearly up, that is.

Puru Saxena, founder of Puru Saxena Wealth Management and a frequent guest essayist in these pages, reckons ol’ yella will double before the current bull market has had its way. Others predict it will go even higher.

“Real interest rates are negative in most countries,” Puru told Kitco News from his Hong Kong office, “so gold should continue to benefit purely as an anti-currency because people lost faith in the euro and the dollar. At some point people are going to say well, ‘we don’t want to lose purchasing power in currencies that are dubious, we want gold as an insurance.’”

Of course, it’s not only dubious currencies keeping investors awake at night. Those dubious governments standing behind said currencies are enough to strike fear (and loathing) into the hearts of many a brave man and woman. With a gaggle of nitwit inflationistas manning the world’s central banks, it’s hardly surprising that many of our fellow reckoners are turning to gold as an anti-printing press store of wealth.

Joel Bowman
for The Daily Reckoning