commodities, another bubble ?

[Nahed]

Gold at 1010 $ today, it just seems insane ..prices are reacting on bad news and not on fundamentals (not that good by the way..) .
Is it time to short commodities ?

 

[pardasani]

Well I guess part of the bubble has to with the fact that investors don't have options -- the equity markets have been volatile, almost everyone agrees that we are/ we will have a recession.... 2 yr government bonds are yielding less than 1.5%..... The currency markets is having its own troubles: yen and euro keep breaking records by the day, and with Fed cutting atleast 50 bps tomorrow it only adds pressue... so it comes down to either holding cash (which may turn out eventually to be the best bet) or commodities specially for a short term horizon...

 

[Sanket Patel]

I agree with pardasni. I think surge in commodity prices while partly a function of increased demand (India and China), are also a result of a 'flight to quality.'

 

[bigbadwolf]

Is it time to short commodities?

Short commodities and move to what? Financial assets are suspect.

 

[Muting]

Gold at 1010 $ today, it just seems insane ..prices are reacting on bad news and not on fundamentals (not that good by the way..) .
Is it time to short commodities ?

There is bubble in the commodities. But the current economic fundamentals couldn't provide enough forces to let the bubble go bust. The financial market is so volatile and in the coming years, inflation will turn to be a very big issue confronting the central banks. Agreeing with bigbadwolf, I cannot see there are many alternatives for investors to invest in. Buying bonds only led to the profits eaten up by inflation. The TIPS runs at negative yield. Stocks provide certain inflation hedge but that will be very long term investment horizon.

 

[bigbadwolf]

Agreeing with bigbadwolf, I cannot see there are many alternatives for investors to invest in.

In a way, commodities have become the new "hard currency." And I think this will remain the case for the foreseeable future. In other words, if I had some gold hidden under my bed, I would stop worrying about the daily and weekly fluctutations in its value relative to paper money, secure in my conviction that paper instruments such as cash and bonds have to decline in value relative to it in tbe medium- and long-term. In yet other words, the era of using paper instruments to frantically chase paper profits is possibly drawing to a close. Let me kick myself for not seeing this a few years ago and buying gold when it was $300 an ounce....

 

[Nahed]

The thing is that everybody agrees that gold is a "safe Haven" and there is a big consensus now on the market that investing in gold in particular (commo in general) is a good thing.
Yes the money has to go somewhere now it is commo , 3 or 4 years ago it was the abs mbs and credit derivatives, before that it was tech stocks. ..(what worries me is the big consensus )
Now more and more hedge funds/asset managers are putting money in the sector and the price fluctuations are in part explained by traders/pm/am speculations...
Gold is not safe anymore...
Would you buy gold at 1000 now ? I would not

 

[GusTsahas]

While it's true that commodities are running for the well known fundamental reasons and the meltdown of the dollar, we are nowhere near bubble territory yet. The CRB index is extended and we could get a 30% draw down ....... and still be in an uptrend and will have further to go.

As a reminder to all how a bubble feels..... remember the 1999 period for equities when your uncle, your plumber, and your florist were trading stocks??? When it was the talk of the parties, the content of the magazines and wild fortunes were made in months?? That's a bubble!!

Remember real estate in 2004?? when everyone was a part time real estate agent, a mortgage broker, a residential contractor, or a "flipper"??? .... How about the daily ads on Bloomberg "buy the house for no money down" or all the people that are willing to risk their credit on speculative purchases cause everyone was making money in real estate!!

So while I can't tell the future, my uncle has not bought gold bars yet, my plumber does not know what exchange oil is traded on, and my florist has not gone out and bought wheat contracts just yet. When the fever happens, you will all know it..... and a year or so later, yes, it could be a bubble!!


For anyone that believes the commodity bubble will not have the fever associated with the equity and housing bubbles I just described above, for reasons one hears from commentators, "commodities are real assets, harder to trade, people don't have access to futures accounts, some assets are illiquid, currency risk....." I can tell you that I had just started college in 1979 and students, taxi drivers, and doctors were all trading GOLD and people were selling out of their assets and going on debt as they just had to buy gold and silver.

See the chart... this is what a bubble looks like!!

http://www.bullnotbull.com/archive/gold1980.html

 

[Sanket Patel]

The thing is that everybody agrees that gold is a "safe Haven" and there is a big consensus now on the market that investing in gold in particular (commo in general) is a good thing.
Yes the money has to go somewhere now it is commo , 3 or 4 years ago it was the abs mbs and credit derivatives, before that it was tech stocks. ..(what worries me is the big consensus )
Now more and more hedge funds/asset managers are putting money in the sector and the price fluctuations are in part explained by traders/pm/am speculations...
Gold is not safe anymore...
Would you buy gold at 1000 now ? I would not

I agree, gold prices are ridiculous. This reminds a bit of the infamous Dutch Tulip Bubble. As for buying gold at $1000 I like the "castles in the air" rationale posited by Burton Malkiel in A Random Walk Down Wall Street - paying $1000 for gold is perfectly fine if there is someone willing to pay more.

Personally, I wouldn't touch the $1000 gold, I was just illustrating Malkiel's idea.

 

[pardasani]

Would you buy gold at 1000 now ? I would not

I guess the question is what to buy right now (equities, bonds, FX, emerging markets) -- and the answer to this question is Gold, and that has been pushing the price higher..... people have been selling stocks and generating alpha with gold...

Gold is traditionally a storage of value.. Historically if times are volatile, Gold outperforms investments in stocks-- since gold will have always have "intrinsic value" its always a safe bet.... We have witnessed stocks falling 40% for 2 days in a row now, and something like this would not happen to gold... Emerging markets are again all about equities -- and again the same argument applies...

 

[Nahed]

I guess the question is what to buy right now (equities, bonds, FX, emerging markets) -- and the answer to this question is Gold, and that has been pushing the price higher..... people have been selling stocks and generating alpha with gold...

Gold is traditionally a storage of value.. Historically if times are volatile, Gold outperforms investments in stocks-- since gold will have always have "intrinsic value" its always a safe bet.... We have witnessed stocks falling 40% for 2 days in a row now, and something like this would not happen to gold... Emerging markets are again all about equities -- and again the same argument applies...

I agree with you pardasani... We all know that there is a negative correlation between gold and the USD and the correlation is higher (in absolute terms) when the USD is down...
I'm asking myself...Is gold still a safe haven ? or the market is over reacting ? Will the past repeat itself ? What if the consensus is wrong ? is trend really your friend ?
<something like this would not happen to gold> I think that everything could happen there is some stuff that we cannot predict...(The Black Swan for example )

 

[Andy Nguyen]

And to put things in perspective, gold hit a record 1,306.60 today
Commodities: Gold Settles at Record $1,306.60 - WSJ.com