Jul 5, 2008

Gold: the precious laggard that will hit $2,000

Gold: the precious laggard that will hit $2,000

By Ian Williams, Charteris Treasury Portfolio Managers
Last Updated: 4:25pm BST 04/07/2008


In 1999 when oil was $10 a barrel, I suggested that the price would ride fivefold to $50 a barrel in real terms over the next few years. This forecast was dismissed with incredulity at the time. Almost 10 years later with the price over $130 a barrel, my original forecast turned out to be rather timid - with mainstream commentators now forecasting $200 a barrel.

My forecast was based on an analysis of long term future supply-demand trends, combined with a study of ultra-long term commodity cycles.

What is striking about ultra-long term commodity cycles is how seemingly unrelated commodities appear to rise and fall together.

Price data shows that around 1999-2000, virtually every single commodity hit a significant low before turning up sharply. Nickel hit a low before proceeding to rise ten-fold in the period up to April 2007. Similarly copper also bottomed around this time before an eight-fold rise up to May 2006. Copper is once again challenging its all-time high and looks set to move into new high ground.

The reasons for this stellar performance are now well-trodden - the emergence of China, India and Russia - as major consumers of scarce and in some cases increasingly finite resources.

This commodity super-cycle phenomenon shows no signs of abating. But to profit from it, investors need an understanding of the leads and lags within the commodity family to avoid being caught buying a particular commodity at a short-term peak in its price. I would be very wary about buying oil assets at present - simply because the price of oil in relationship to other raw materials is becoming very stretched....CLICK FOR MORE

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