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XMFSinchiruna (26.98)

Phenomenal Long-Term Perspective on Commodity Prices

Recs

26

April 23, 2010 – Comments (14)

This amazing chart, created by frequent JSMineset contributor and charter extraordinaire Eric DeGroot, offers investors a truly rare perspective on the long-term pricing environment for commodities. The archival data prior to 1947 have been reconstructed into the CRB Spot Index to provide an interrupted look at broad historical trends in inflation as experienced by those high-maintenance consumers who eat food and wear clothes.

As Eric points out, the present cycle bears a remarkable resemblance to the price action observed from 1938 to 1951. I'll leave you to draw your own conclusions, and I hope you enjoy these insightful charts. Because images work bettwe within comments, I will post the remainder in a comment below. Enjoy:

14 Comments – Post Your Own

#1) On April 23, 2010 at 4:55 PM, XMFSinchiruna (26.98) wrote:

Now, to see how Gold's purchasing power with respect to those same commodities has held up over time, you'll note that the corresponding costs as denominated in gold look very, very different.

Got gold?

Sinch

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#2) On April 23, 2010 at 5:49 PM, XMFSinchiruna (26.98) wrote:

P.S. Today's gold action was exceptionally bullish. I expect the previous high to give way soon.

Once we're back into uncharted territory, predicting the next intermediate target before another correction sets in becomes difficult, but just as I did when correctly calling the near-term peak near $1,220, I will keep a very close eye on all the contributing metrics and indicators to render my assessments of relative strength as we progress.

In any event, I conservatively expect $1,500 to be taken out during 2010. $2,000 could potentially come as soon, particularly if we have an unwinding of the insitutional naked short position based upon leveraged paper certificates, but I have a feeling it will be 2011, or possibly even 2012 before that mark is reached. As you can see, the trajectory and timing of subsequent milestones becomes harder to time as the bull market progresses. No one can predict these movements with certainty ... at best they are educated guesses with respect to timing. The only thing I continue to remain certain of within myself is that my conservative price target of $2,000 will be reached before this bull market cycle has finished running its course. For that reason, successful gold and silver investors will be of the buy and hold variety, while those seeking to trade peaks and valleys in the way face a serious risk of missing the most extraordinary gains of all. I trade shares as a hobby, as Fools can see in my silverminer portfolio, but I do so only with a miniscule portion of my overall pm allocation ... so that when I am eventually wrong on timing the consequences will be similarly miniscule.

Good luck... it's going to get interesting from here.

Fool on!

 

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#3) On April 23, 2010 at 6:15 PM, Vet67to82 (< 20) wrote:

Excellant post ... great work.  Thanks.

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#4) On April 23, 2010 at 7:37 PM, nuf2bdangrus (< 20) wrote:

I bought 4 Jan 11 130 calls for 3.10 (1240+ commision).  If gold hits 1500 that will be a nice trade.

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#5) On April 23, 2010 at 7:38 PM, nuf2bdangrus (< 20) wrote:

What do you think of GBG?

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#6) On April 24, 2010 at 8:40 AM, XMFSinchiruna (26.98) wrote:

nuf2bdangrus

I avoid time-dependent gambles like the bubonic plague.

With greater reward comes greater risk, and I'm all about minimizing risk in thie uncertain economic environment.

Good luck.

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#7) On April 24, 2010 at 9:10 AM, XMFSinchiruna (26.98) wrote:

nuf2bdangrus

On GBG:

The Hollister mine doesn't impress me much. The grades are good, but this is a rather small deposit to get too excited about. Looking at the 2009 technical report, the estimated production costs are above the industry average, the LOM capital cost is higher than the project's NPV, and the payback period is fully HALF of the short 10-year mine life. While I'm sure it will be profitable in this $1,000+ price environment, which I do expect will prevail for quite a while, there are scores of competing development projects around the world that would entice me far more as an investor.

That Burnstone project looks far more interesting to me. Too bad it's in S. Africa. 

With all of that said, when I'm shopping around for companies that offer no present production (save for the recent ore sale to Newmont), I seek valuations that are quite a bit further from full that these shares would appear to me to be at first glance.

Thanks for prompting me to take a closer look. I've ignored the company for quite a while, but I do get asked about it from time to time, so I'm glad I stopped to take a look.

After peering in, I don't get that "I need to own that" feeling that I get when I look into companies that eventualy find their way into my portfolio. That's not to say the company won't do well, as most producers will. It's just that I believe better alternatives abound.

 

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#8) On April 24, 2010 at 9:28 AM, catoismymotor (< 20) wrote:

Chris,

Good work as always. I'm looking at increasing my position in my favorite silver miner this week or next. Like you I think some key events are about to happen that will raise PM prices.

Cato

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#9) On April 24, 2010 at 11:30 AM, bothisellhigher (< 20) wrote:

Thanks for yet another solid look at your favorite subject.  I "had" gold...AUY...sold $12.84 December 4 or 5 or?  Got Gold? Gonna buy it back (AUY) when it closes above $10.68...which looks like it will be soon.

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#10) On April 24, 2010 at 11:41 AM, 100ozRound (29.41) wrote:

Just curious -Yamana's $10.43 right now; why do you want to wait until it closes higher to buy?

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#11) On April 24, 2010 at 3:02 PM, GeneralDemon (< 20) wrote:

Hi Chris,

Last year we had a discussion about what we thought was the better silver miner - I liked PAAS and your fav was CDE. It looks like they are still neck to neck. Do you still favor CDE? And don't you like silver better than gold here due to the ratio?

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#12) On April 24, 2010 at 8:31 PM, XMFSinchiruna (26.98) wrote:

GeneralDemon

CDE still has enormous growth potential, but obviously it has been a huge disappointment thus far.

PAAS is a solid, quality company and an excellent value play.

I own them both.

All of my focus in silver for the past year has been with the juniors, although of course I still own shares of each of the larger producers. Impact Silver, Endeavor Silver, Great Panther ... these are the nmes I;d be focusing on. They're producers, but they;re valued as if they were second rate explorers.

I do still like silver better, but I believe dual exposure with an emphasis upon silver is best.

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#13) On April 25, 2010 at 7:10 PM, GeneralDemon (< 20) wrote:

Thanks Chris!

I believe we silver investors are in for slow steady gains until everybody catches on (as usual, it takes awhile). Thanks for the names - I will research them and let you know what I think (my two centavos).

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#14) On April 25, 2010 at 8:00 PM, ragedmaximus (< 20) wrote:

anyone familiar with us/energy assets investing? it says 15-25% returns. is this like bpt?

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