Commodity Cycle Bull – Or Economic Bust
Many analysts have predicted and are expecting a major commodity cycle (some even a super cycle) in commodities. While logic and timing suggest that should be what occurs, I am not so sure if that will be how things play out. Too many analysts and commentators look at the past and figure we are overdue and because certain cycles played out this way in the past, that is what will happen again now. It may, but I wouldn’t bet on it. As I have warned in other posts and comments regarding the economy, stocks, and especially precious metals, this time IS different. So many economic variables are different. The biggest and most overlooked, is that we are on a 50+ year fiat experiment, that is breaking down and about to end. Comparisons from before 1971 are mostly useless. Even since then, the cycles are not comparable, because of the level of debt and extreme use of derivatives and leverage which continue to grow exponentially. Expecting results similiar to past eras is unlikely to play out as many believe. Why would anyone risk betting on energy(oil and gas, uranium etc.) copper etc. with the likelihood of a major global economic contraction staring them in the face? Could they have a brief period of upside as govts. and central banks cut rates and print money in the early stages of a collapse? Possibly. Why take the chance, when there is a perfect no lose commodity, regardless of whatever happens? No, not gold, although it will continue to rise and protect purchasing power. The answer is silver. If I am wrong about the economy collapsing over the next year or two, at least, silver’s industrial demand will continue to grow along with all the other industrial commodities I just eschewed. Silver arguably has the largest supply deficit, going into it’s 5th straight year. If however, I am correct and all industrial commodities suffer from demand destruction, only silver amongst them, will still be in increasing demand, because it is also money. When the economy and the fiat system declines and fails, the level of demand for silver by people needing a hard asset currency to live and transact, will more than offset any industrial demand destruction it may experience. Forget all the rest and stick with the best. General commodities no, silver YES!
Why not copper ? Less constraint controls via margin call raises and such. New copper mines are rare.
As I explained above if the economy does well or even ok, copper and other commodities should do well, also. However, if global economies decline in a recession or worse, commodities including copper will decline. The one unique property that provides silver with a no lose outlook is it’s value as money.
While it’s probably true that a major economic downturn will depress commodities in the shorter term, that will last only as long as it takes central banks and governments governments to print and disperse massive amounts of fiat to reinvigorate economies. This expansion of the money supply will be world wide, just as the economic dislocation will have been world wide. Governments will orient that spending to massive infrastructure improvements, and other employment enhancing projects. Commodities will be in very high demand. Alas, we have not been investing nearly as much as we should have, these past few decades, in developing supplies of most commodities. Prices are sure to rise inexorably before longer term commodity projects come on line to alleviate shortages.