It thus seems that while the era of “easy money” has been with us for nearly 42 months that same era is set to end in no more than 20 and probably more like 12-16 months. We are on the other side of the accommodative curve now, and that’s the shrinking window of opportunity for the QE-addicted commodity speculators to make a go of it in various, already price-inflated assets.
As for the “bottom-line” types of items to “file” after reading the communique from the Fed, they are: a) Inflation is picking up and it is on the Fed’s radar b) US economic growth is “moderate” but will “pick up gradually in coming quarters” c) The housing sector is improving and d) Yes, there were no hints of further QE in the statement, you may stop looking for them now. Yes, even after the US-reported 2.2% GDP growth level that was reported today.
And now, as promised in our previous posting, it is time for a bit of myth-busting and a bit of fact-based education. We would like to share with you two key, interesting findings by our good friends over at the CPM Group New York. As regards leisurely weekend reading, this qualifies as some of the best material we can find for you; true, and mind-expanding at the same time.
We start off with this observation made by the CPM team: “At commodities investment and mining conferences, in bank and broker reports, in coffee shops and airports, people repeat the same bromide: Ever increasing populations and rising global incomes and wealth inexorably means that in the long run commodities prices must rise. Unfortunately, for investors seeking simple routes to riches, this 'Pater Noster' falls readily in the face of both historical, empirical evidence and economic theory.”
Shocked? Angered? Surprised that what you just read goes against the grain of 99.99% of that which you have been “taught” by every hard money newsletter or commentary that you have ever read? Well, you might just allow for a small “opening” in that wall of pre-conceived beliefs you may have built up and consider the plain facts. What are those facts? Let’s let CPM and its team of analysts lay them out for you:
- The world’s population rose seven-fold, from around 1 billion in 1850 to 7 billion today. That population is projected to continue rising, but the growth rate in the world’s population has been, and is continuing to slow dramatically, putting less pressure on demand in the future than has been seen over the past 160 years.
- The world’s population has risen sevenfold since 1850 while the global economy today is 85 times larger than it was then, and commodities prices are half of what they used to be, adjusted for inflation.
- The empirical evidence suggests that just because the world’s population and wealth appear likely to expand in the future, it does not mean at all that commodities prices must rise as well.
- The world’s population has exploded and overall wealth has risen sharply. These increases have led to increased total demand for commodities. Even so, prices have fallen in the long run.
- Markets do not always respond to the most simplistic analyses; a point producers, investors, and others should heed.
We could of course add that gold – a hybrid that is currency and commodity – also experienced a decline in real, inflation-adjusted value starting from lofty (near $6,000) levels back in 1700. All currencies appear to lose value over time, and gold, as one of them, is not immune. However, let’s focus on the latest fact in the CPM Market Commentary released this week. The finding is that since the dawn of time (it is now estimated) over 5 billion ounces of the yellow metal have been mined. Other estimates for cumulative gold production go as high as 5.5 billion ounces or 170K tonnes.
More than 155,500 metric tonnes of gold are resting above ground and nearly 71,000 tonnes (45%) of the same are contained in jewelry, religious, and decorative items. More importantly, nearly 90% of this staggering quantity of gold is still around, in one form or another and is available should anyone wish to "mobilize it." By comparison, the cumulative global silver production is well over 50 billion ounces (1.55 million tonnes) but nearly half of that not-so-little cube of white metal has been lost. Humans are very good at hanging on to gold but not so careful with their silver, it would appear.
Have a pleasant weekend,