New Trends for 2009: Are Commodities and Gold Regaining Strength?

Last week saw some very interesting turns in the market. Stocks displayed some renewed weakness. Treasury bonds sold off violently and gold broke out of a consolidation pattern to the upside, taking out the $880 mark which has served as a ceiling through much of its correction in the 2H of 2008.

It’s important to note that while gold (GLD) is off the highs in US Dollar terms ($1,000), it has broken out to new highs in almost every other global currency – the UK Pound and Euro included. This is indicative of a strong bull market in gold and also shows that global confidence in world currencies is sinking as central banks resort to the printing press to solve our problems. Bad move, considering the printing presses are what got us into the problems in the first place.

I believe the only reason that gold has not made new highs in 2008 in U.S. Dollar terms is because of the artificial flight-to-quality into the US Dollar, which is most likely a short-term phenomenon. I am gaining new confidence in the case for the gold bull market to enter its strongest phase: panic buying. Here’s a fact that’s not often recited by the gold skeptics: We are now in the eighth year of a strong gold bull market, which is likely to continue for, in my estimation, at least another three years. Gold has averaged a 16% annual gain in Dollar terms for the past eight years. Clearly it is the best performing asset class in the decade. You might ask if it’s getting late in the move, but the fundamentals are still supportive.

The gold bull market is reflective of how dependent our governments have become on creating and pushing debt on its people – a trend that is accelerating. Because of the breakout of the gold and strength in mining stocks, I would recommend at looking to buy some of the mining and exploration stocks including RGLD, PAAS, NEM, and AUY. You can also buy a basket of mining stocks with GDX. This sector was crushed in the October/November sell-off, but it is now bouncing back violently with mining asset prices being supported by the moves in gold and silver. This will be a careful area to watch because these stocks have established early leadership in 2009. You can read more details about mining stocks and track my investment choices at Futures Fanatic.

Another interesting trend to watch is that commodities are displaying renewed strength, especially in relation to equities. Last week commodities and hard assets outperformed equities. Could this be a sign of a trend that will be established in 2009? It is something that bears close watching. The chart below shows the potential for an interesting turn in the commodities sector.

Comments

[PeteK:]

Gold is women's best friend.
Can't argue about that.
Oil, human can't survive without it.
At least for now.

Jan 27 03:35 AM

[GMiki1:]

A continuation of the long-term trend.

Jan 27 10:47 AM

[silverwood:]

Scott, I mostly agree with your article. You need to correct this statement...

"I believe the only reason that gold has not made new highs in 2008 in U.S. Dollar terms is because of the artificial flight-to-quality into the US Dollar, which is most likely a short-term phenomenon."

Gold made new highs in March 08.

With the new administration coming in, and their commitment to do something to fix the current crisis, it will be their actions which will drive the gold market to new highs. These people now in charge are following the Keynesian school of thought. One principle of that school of thought that will be played out in 09 is; when the consumer stops spending the government must step in and be the spender of last resort. The economic ground is now furtile for this to occur. People are crying out for the government to DO SOMETHING! and spend they will. Monetative easing to the rescue in full force as foreign lenders will be harder to come by. Gold is beginning to look forward to these events, in the face of all the deflationary talk.

Jan 27 10:48 AM

[R. Scott Ra...:]

duly observed. I meant to say 2H 1008. I guess March was so far back I forgot about it

In calendar terms, it was only about 10 months ago. In financial era, it was a long while ago...


On Jan 27 10:48 AM silverwood wrote:

> Scott, I mostly agree with your article. You need to correct this
> statement...
>
> "I believe the only reason that gold has not made new highs in 2008
> in U.S. Dollar terms is because of the artificial flight-to-quality
> into the US Dollar, which is most likely a short-term phenomenon."
>
>
> Gold made new highs in March 08.
>
> With the new administration coming in, and their commitment to do
> something to fix the current crisis, it will be their actions which
> will drive the gold market to new highs. These people now in charge
> are following the Keynesian school of thought. One principle of that
> school of thought that will be played out in 09 is; when the consumer
> stops spending the government must step in and be the spender of
> last resort. The economic ground is now furtile for this to occur.
> People are crying out for the government to DO SOMETHING! and spend
> they will. Monetative easing to the rescue in full force as foreign
> lenders will be harder to come by. Gold is beginning to look forward
> to these events, in the face of all the deflationary talk.

Jan 27 08:56 PM

[Tetrapod:]

What's with the sudden drop in premiums for Gold and Silver coins / bars? Is it because the US and Canadian mints have started shipping again?
The dealers haven't dropped their premiums yet, but on trading sites such as bulliondirect.com, gold coins are selling at $30 / oz premiums over spot, and silver at $3.00 / oz over spot. 100 oz silver bars are going for less than $1.00 per oz over spot. This is way down from just a week or two ago.
Any ideas?

Feb 01 12:05 AM