I follow the commentary of Paul Dietrich of Foxhall Capital, Peter Schiff of Euro Pacific Capital and many others on MarketWatch.com on a variety of subjects in the Market and more particularly commodities especially Gold and Silver. Based on what I've read I feel that the recent commodities pullback is temporary.
Paul at Foxhall Capital most if not all his funds assets out of the market early 2008 and lost very little in the market crash in the fall of 2008 vs. 45% losses across the board in the markets.
I quote him here:
and commodities, like oil, gold, silver
and food have all reached new highs.
Corn, wheat and soybeans hit 30-year price highs over the past
month. Oil was over $100 a barrel. Silver matched its 1980 alltime
high price and was dramatically outperforming gold, which
was also setting new price records.
At one point last week, the silver exchange traded fund had gotten
so far ahead of itself, that the iShares Silver Trust ETF (SLV) was
“the most highly traded security on the planet” according to Tom
Lydon at ETF Trends.
Over the past couple of months massive amounts of speculative
money entered these markets. People were investing borrowed
money “on margin” and that is one of the reasons prices in commodities
shot up so sharply.
When markets get ahead of themselves, a correction is a natural,
healthy and desirable occurrence.
In my opinion, this pull-back is just a much-needed correction
and NOT a bear market.
Even silver, which was the highest-flying commodity over the
past few weeks, is now trading at about the same price it was
trading eight weeks ago. Sometimes investors have short memories.
One of the main reasons for the steep correction is that commodity
exchanges around the world raised margin requirements four
times in 10 days to discourage speculators investing with borrowed
money on margin. This forced many leveraged investors
out of the market.
HOW DOES ONE KNOW IF THIS IS JUST A CORRECTION?
None of the underlying fundamentals have changed! That suggests
that this is most likely a normal, healthy pull back in the
market. Consider the following:
The U.S. Dollar is temporarily up against the Euro.
The dollar has dropped about 15% over the past 18
months; but the Euro is dropping, too. It dropped a
historic 5-cents last week. The European Central
Bank continues to print more Euros to bail out
Greece, Ireland, Portugal. More European countries
may need bailouts before the end of the year. In the
short-run a stronger dollar can be a negative for gold
and other precious metals. But in the long-term, as
the U.S. government and the Europeans continue to
print more money and to devalue both currencies,
precious metals and other commodities are likely to
once again move higher.
The U.S. Dollar’s long-term slide should continue.
Most analysts believe the U.S. Dollar should continue
to be devalued, because of massive current U.S.
debt payments; the $600 billion in quantitative easing
by the Federal Reserve this year; the purchase by the
Federal Reserve of $300 billion in bad mortgages
and the need to print an estimated $1.7 trillion in
deficit spending this year by congress.
GDP Growth Declining. The Federal Reserve has
downgraded U.S. GDP growth for this year.
Commodities still top performing asset class. Despite
the recent selloff, commodities were still the year’s
top performing asset class as of the end of last week.
The chart below shows that the year-to-date return
for commodities has far outpaced the return for foreign
exchange, bonds and emerging markets.
Commodities run up and should correct in very well defined cycles. See the chart
below which shows that commodities run through regular cycles of short upswings
and then a correction. The important focus for investors is whether the
overall trend is up or down. We still seem to be in a long-term uptrend.
Source: www.ashraflaidi.com
Asian and emerging markets are still showing increases in demand for most
commodities. Reserves for commodities are dwindling as suppliers are struggling
to keep pace with growing demand.
The world is still a dangerous place. As we all know, there is probably some new
disaster looming somewhere in the world that we don’t know about and that we
cannot control. For that reason alone, commodities can be an important investment.
As the world and global markets become increasingly fragile and unpredictable,
global investors may increase the demand for commodities in their portfolios.
Interesting read isn't it?
The University of Texas’ endowment fund, 2nd largest in the whole country, bought $1 Billion worth of actual gold this year and demanded physical delivery of it for their vaults. Peter Schiff of Euro Pacific Capital writes here: http://www.lewrockwell.com/schiff/schiff124.html on this subject.
I don't profess to know everything about the gold and silver markets and I read a lot of articles by people who do. I do know some things and I am in the financial industry and read and see things many people don't read and see and the conclusion I come to is that something just doesn't smell right in the world markets right now.
Some very smart people (Paul Dietrich and Peter Schiff) know something is just not right in the world with paper money and it’s not just me or the so called kooks who have begun to believe in the value of real money—gold and silver. What I am seeing in the world and what these two are saying just makes sense.
