Floor Under Commodities Boom Solid While US Dollar Collapses

Everything that’s happened in commodity markets since the dollar’s decline (which really began in 2001, after 9-11), especially rising base metals prices foremost, has been the global reaction to the end of the global dollar standard.

Investors didn’t diversify dollar risk by buying euros (although some of them, of course, did just this.) They bought zinc, or they bought hedge funds that bought zinc futures. Or they bought Zinifex. Some of them may have even stockpiled the commodities that real economies use (zinc, copper, aluminum, corn, wheat, gas etc.)

This, by the way, is gold’s reason for underperforming in the last year. It is not a commodity that’s useful in a real economy. Gold is handy in a hyperinflation, when the public acknowledges a huge loss in purchasing power.

But weighed against useful things people can trade for dollars in the last three years, gold has been found wanting. It may continue to under perform until there is a genuine financial crisis.
But out point today is simple: we should probably not be measuring the dollar’s collapse in gold terms right now…but in base metals…grains…and in the great shift of forex reserves into actively managed portfolios by publicly listed so-called “wealth management” companies.
Not that we’d be buying shares in any of these new Private Equity floats…but you could do worse than just buy calls on the exchanges themselves….if you were a speculator. And if you’re not a speculator, take heart.

Thirty percent of the world’s population is beginning to consume energy, calories, steel, copper, zinc, and Big Macs at the rate you and I have enjoyed for the last 20 years. This is the floor under the commodities boom. And though the superstructure of global finance looks tenuous as it climbs ever higher, the floor feels pretty solid…for now.

Dan Denning
Markets and Money

Is gold useful in a real economy? Will the commodities boom last? Leave a comment below.

Dan Denning

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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3 Comments on "Floor Under Commodities Boom Solid While US Dollar Collapses"

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Chris. Fulker
What happens when EVERY asset class – housing, stocks, base metals, PMs, commodities, the lot – are driven sky-high by this tidal wave of liquidity? Everyone sits around waiting for a crash – which may not happen. What will happen is that there will be a division of society into classes based on who has the money, or at least on who has access to the new money first. Those in the finance sector, government job holders, the rich, those with secure jobs. Assets will continue to be traded, bought and sold – but by fewer and fewer people. (Save… Read more »
william greeson

Man has an eternal love affair with silver and gold! Both will be around long after the paper dollar has collapsed! I’m liking silver better though till the ratio reverts back to 16-1!! Where we are now at 51 to 1 is ridiculous when reviewing centuries of history!


it seems to me that a “gold standard” is very useful in a
real economy.
confidence in money is a good reason to be productive.

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