Why Commodities Now?

The reasons involve currencies, banking, and monetary history. The current monetary system has systemic issues and risks that we have not seen the like of in decades and is likely to see unprecedented turmoil in the next few years. Everyday people have been trained to believe that papers IOUs are somehow safer and more valuable than real money. Our government is printing fiat money faster than anyone can keep track of and our banks, brokerage houses and insurance companies are all heavily dependent upon esoteric derivative investments than not even the best educated analyst can easily understand.

Gold

1. Gold is more than just another commodity, it’s a currency. It is THE currency that has been the foundation of every worthwhile economy on the planet for over 5,000 years.
2. Gold and silver are the only currencies not created and controlled by governments. All of today’s other currencies (dollars, euros, yen, pounds, renminbis, rupees, etc) are ‘fiat’ currencies, which means they do not represent anything tangible but are only worth something due to government decree (namely legal tender laws).
3. The rate of creation of fiat currency accelerated markedly in 1995, leading to today’s worldwide bubble in asset prices. In September 2003 the rate started to slow, suggesting that the bubble might end soon. However, since November of 2008 , that pace has not only increased, it has skyrocketed beyond anyone’s belief level of possibilities.
4. Returning to currencies backed by gold is a harsh reality. Even the possibility that it might happen will cause the value of gold to rise considerably. Most experts agree that a return to the gold standard would result in gold reaching seven to nine thousand dollars per ounce. That amount increases with the rise in paper currency outstanding.
5. Governments and central banks have been suppressing the price of gold since 1995 by lending and selling their gold. They won’t be able to keep it up forever. Then the price of gold and silver will soar.
6. The pressures of enormous debts will increasingly tempt the United States to inflate the US dollar so much that it will become almost worthless, in order that the debts can be easily repaid in near-worthless dollars. Gold will gain as the falling US dollar destroys trust in fiat currencies. Already the dollar is at year and intermediate term lows and is looking over the edge of a precipice.
7. Gold is hoarded and saved. It is the number one commodity used as money and is a safe haven. The supply of gold per capita has been stable for centuries. Now, for the first time in a quarter millennia or more, we are beginning to see small shortages in supply. Two years ago, multi-metric ton contracts were relatively easy to secure – today, not so much.

Silver

1. Silver is used in over 2,000 ways from computer components to solar panels, medicine and more.
2. There is less silver available per investor today than there is gold.
3. The above ground supply of silver has been dropping for 15 years, creating alarming scarcity.
4. Silver, like gold is real money. In periods of economic uncertainty it is a safe haven and far easier for average investors to own than the much higher priced gold.
5. Historic averages have pegged gold to silver price ratios at 15:1. This is because there is approximately 15x the amount of silver in the earth’s crust than gold. This relationship held until very late in the 1980s. The current ratio is 60:1 (recently it was over 70:1).
6. Silver is critical to the “green” economy. Silver conducts and holds electricity with ZERO degradation. It is found in solar panels, electric batteries and energy saving electrical lighting.
7. Soldering solution for irons and toasters is 5% silver solution. With Walmart in the growing Chinese economy, one toaster or iron per family would cause silver to double.
8. ETFs are supposed to be backed 1:1. Currently ETFs are under investigation as the size of the funds far exceeds the known supply. The COMEX is also under scrutiny for its ability to match contracts to collateral and in 2006, the COMEX defaulted on Nickel, pushing the price up five fold in less than six months.
9. 80% of silver is produced from base metal (iron etc) mines, many of which are being shut down, put on slow pace and otherwise degraded for productivity due to economic weakness – adding to a supply issue.
10. (Further information is proprietary and for clients only.)

Palladium

1. Palladium is used for catalytic processes and has replaced platinum in catalytic converters for automotive use.
2. Palladium is a critical element used in the refining of oil into automobile gasoline and jet fuel. Both China and India have recently seen huge increases in their domestic automotive markets.
3. (Further information is propriety and for clients only.)

Platinum

1. All the platinum ever mined would fit in the average size living room!
2. Annually, only about 133 tons of platinum are mined, compared to about 1,782 tons of gold.
3. Louis XVI of France proclaimed platinum the only metal fit for royalty!
4. 10 tons of ore and a five month process is needed to make up one ounce of platinum.
5. Although Platinum may seem new, it is also legendary. The Ancient Egyptians and South American Incas prized it.
6. Platinum reached its peak of popularity in the early 1900’s, when it was the preferred metal for all fine jewelry in America. When World War II began, the U.S. government declared Platinum a strategic metal and its use in non-military applications, including jewelry, was disallowed. To appease consumers, who preferred Platinum’s white luster, white gold was substituted in Platinum’s absence.
7. Platinum, the leading metal in the PGM (Platinum Group of Metals; includes palladium and rhodium) is used industrially for pollution control devices and aeronautics.
8. Platinum is used in the refining of petroleum, agriculture in fertilizer, glassmaking, medicine with anti-cancer drugs, and automotive in spark plugs and fuel cells.

Crude Oil – Dynamics of a Market.

1. Most precious commodity known to man. Without it, no economy can run, much less grow.
2. Half the world’s population lives in two of the fastest growing economies; and both have a voracious need for oil. (China and India)
3. Oil is now being hoarded and saved by institutions in the same manner as gold (a hard currency) – as a hedge against uncertainty and declining currency values.
4. Owning oil as a physical commodity is completely liquid.
5. OPEC is dominated by Saudi Arabia; a group dedicated to higher oil prices. If there is price weakness, they simply cut off supply – pushing prices higher.
6. Empire Analysts see oil at $100/barrel short term, $125+/barrel intermediate term.
7. US surplus and those of Europe are no longer the predominant factors dictating oil prices. With Asian demand and the size of the Chinese and Indian economies, their needs push prices upward.
8. Japan, one of the world’s leading manufacturing economies has no oil resources and must import 100%.
9. Any turmoil in the Mideast pushes prices up, quickly.
10. Annually there are hurricanes that pass through the Gulf of Mexico. These storms predominantly occur between June and November. Any storm that threatens the oil supply in the area pushes prices upward. Rarely is there a season without at least one highly powerful storm in the gulf.
11. China is buying huge supplies of oil from Russia; eliminating a significant and historically large “overhang” from the oil markets.
12. Short term, oil is a news-driven market. When there is news affecting oil, prices move dramatically faster than investors can react. With prices now low, predominant news should push prices to the upside.
13. The automobile markets in China and India are growing at a phenomenal pace. In August, more cars manufactured in China were sold to Chinese citizens than cars manufactured by American companies were sold to Americans. India is not far behind.
14. In July 2008, the all-time high on crude oil was set at $147.20 per barrel. Prices were pushed up, not by economic factors, but by speculators in the futures and options markets. At any time, the same speculators can instigate and propel another swift, upward spike to those levels. On that run, it took less than four months for crude oil to move from $70 to $100 per barrel and less than seven months to hit its high.