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To further the discussion on commodity prices, this chart is the inflation-adjusted version of the chart I posted earlier. Note that the monetary policy regime (which typically alternates between easy and tight) has a significant impact on the behavior of real commodity prices. Easy money not only facilitates commodity speculation using borrowed money, but it also shifts people's preference in favor of tangible assets versus financial assets. In an easy-money world, physical things (real estate, commodities, buildings, structures, offices) become more attractive than financial assets. We tend to build more things when money is easy, and those things require commodities. They become more attractive because their prices tend to rise—tangible assets hold their value (or maybe even make money) when inflation rises, whereas financial assets tend to suffer during inflation because inflation pushes interest rates up, and that depresses the value of financial assets.

Gold is the tangible asset par excellence, because it has proven to hold its value relative to other things over very long periods. But it too can exhibit exaggerated swings as monetary policy alternatives between easy and tight. In addition, in my experience, gold tends to lead other commodities.

So when money is easy, as it is has been and is now, people naturally tend to prefer to buy things instead of financial assets. Stocks have gone up over the past year (about 75% in nominal terms, but only 50% in terms of gold) but they are still very depressed relative to gold from an historical perspective, as the next two charts show. When monetary policy shifts away from its current extremely accommodative posture, as it must at some point, expect gold to decline and stocks to continue to rise.

Source: Commodity Pricing Trends: Part 2