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