The moves in oil, gold, and even wheat are all telling us something. First, they’re telling us that the U.S. dollar is headed for the black pit of currency hell, where poorly managed fiat currencies go to suffer and die. And here’s a question for you: how low will the dollar have to go before OPEC and oil producers like Russia start asking to be paid in a currency that isn’t going down the toilet? How much lower would the greenback go if Russia—the world’s second-largest oil producer—moved to price its crude in euros?
Don’t get us wrong. The rising price of oil indicates a bullish fundamental situation, where demand is growing faster than supply. But the recent price action in oil is more indicative of dollar weakness than oil strength. We suspect oil producers are not keen to get paid in a currency that’s worth less and less with each passing day.
Meanwhile, the 200-year down cycle in commodity prices is reversing itself in the face of six billion hungry people. December wheat on the Chicago Board of Trade went as high as US$9.11 overnight—an all time high. This came at the same time US wheat stockpiles are at a 33-year low.
So many mouths to feed. If only human beings could run on ethanol.
Though wheat prices have doubled, the share prices of Aussie producers have actually fallen. Greg Canavan at Fat Prophets explains, “The grains industry is inherently cyclical, and now there are concerns about the crop…With the prospect of lower volumes, they cop it, because they have high fixed costs.”
Markets and Money