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Even though I have not posted commentary in the last
few months, I have been keenly aware of the wild ride that has occurred in
the commodity markets over the last couple of months. The major sell-offs,
that have occurred in nearly every sector, have left many commodity bulls
around the world asking the following question: Is this bull market in
commodities finally over?
To be fair, there is some validity to this question. If one was to
exclusively look at the losses they have suffered in their portfolios or even
charts of these markets in the last few months, the outlook has looked pretty
grim. Nonetheless, investors have had a choice to either stay focused on
fundamentals or simply exit right alongside the herd.
Before you decide to exit... consider the following historical example.
"During the first stage of the 1970s gold bull
market, the price of gold moved up from $40/ounce to $199/ounce. The move up,
however, did not happen overnight. It took about a couple of years for the
price of gold to finally close at just below the $200/ounce level. In 1975
the price of gold then sold off sharply, falling to just below $110/ounce. While
this decline was substantial, especially in the moment, it ultimately just
represented a correction in a substantial multiyear bull market. In the
1970s, generally two types of investors participated in the gold market. The
first investors purchased gold solely for speculative reasons. In other
words, they had seen the price of gold appreciate from $40/ounce and simply
wanted to participate in upcoming profits. Beyond this, there was no basis
for their purchase. The second investors, however, purchased gold because
they understood the fundamentals that were driving prices higher. For
instance, these investors understood that the inflationary pressures would
only intensify and that demand for the metal would continue to increase. As a
result, they were confident that their long-term investment was supported by
fundamental factors.
"When gold prices corrected from their high, the first investors
panicked and sold their positions. In fact, I am sure that many investors
happened to get in right at or near the $199 high; this seems to be typical
for investors who chase returns. The second investors, however, had a firm
grasp on the fundamental factors that were driving the price of gold. Thus,
they held on to their positions. In the end, they were able to profit
handsomely from a metal that eventually reached $850/ounce in January 1980. I
bring this example up so that you can have an understanding of the dynamics
of this commodity bull market. We are in the midst of a long-term bull market
that will likely last for another 10 years, but there will also be moments
where the commodity markets will experience some pretty significant sell-offs.
Does this mean that you should panic? No. Does this mean that the bull market
is over? No. As long as the fundamentals are still intact, you can expect
commodities to continue their bull run. And it is precisely for this reason
that you must understand the fundamentals that are driving this commodity
bull market."
The above is an excerpt from my new book,
Commodities For Every Portfolio: How To Profit From The Long-Term Commodity
Boom. (Wiley 2007). If you are interested in learning more about why we
are still in the early stages of this commodity bull market and why
commodities belong in every portfolio, I encourage you to order my new book here. In addition,
if you are interested in finding out more about [what]
the book is about, you can read the preface exclusively at www.commoditynewscenter.com.
Lastly, I am also offering a free commodity newsletter filled with market analysis
and recommendations-- you can sign up here: Note: I
am no longer affiliated with Wisdom Financial. If you signed up for my
newsletter in the past, you must sign up again.
Emanuel Balarie
Jabez Capital Management
www.commoditynewscenter.com
Emanuel Balarie
is President and CEO of Jabez Capital Management. In
addition, he is also editor of www.commoditynewscenter.com and the author of Commodities For
Every Portfolio: How To Profit From The Long-Term Commodity Boom. Mr. Balarie's
industry experience ranges from commodity stocks to futures to alternative
investments. He is a highly regarded advisor to clients and institutions on
the commodity markets, and has had his research published all over the world.
In addition to being a regular guest on CNBC, Balarie
is frequently quoted in financial publications such as, The Wall Street Journal, Reuters, Marketwatch from Dow Jones, and Barrons. Mr. Balarie is a graduate of UC Berkeley.
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