Gold, commodities & the Dollar
How best to price the US Dollar's decline right now...?
EVERYTHING HAPPENING in the global commodity markets since the Dollar's decline began in 2001 – straight after 9/11 in fact – has been a reaction to the end of the global Dollar standard.
Most especially the rise in base metal prices.
Investors didn't just diversify their 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 stock in Zinifex.
Some of them may have even stockpiled the commodities that real economies use, too –zinc, copper, aluminum, corn, wheat, gas and so on.
This, by the way, would explain gold 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.
Gold may continue to under perform until there is a genuine financial crisis. That's not to say it won't remain a vital hedge against just such a risk.
But the point for today? We should perhaps 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 I'll be buying shares in any of these new Private Equity floats such as Blackstone. But you could do worse than just buy calls on the stock 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 ever more tenuous as it climbs ever higher, the floor feels pretty solid...for now.