More on Commodity Bubbles

The New York Times today asked Have Commodities Become the New Tech Stocks?
Of particular interest here are the very different outlooks for commodities in general and precious metals. On commodities as a whole, there seems to be some consensus that as growth slows, commodity prices will moderate.

A widely followed benchmark of commodity prices, the Commodity Research Bureau index, reached a record high recently after nearly doubling since late 2001. Shares of companies that supply these materials — gas pipeline operators, miners of industrial and precious metals, forest products concerns — have followed a similar trajectory, but some analysts contend that prices have risen too far, too fast.

"There are probably some areas that offer better prospects" for investors "because commodity price expectations are very high," said Stuart Schweitzer, global markets strategist at J. P. Morgan Asset Management. "I would be surprised if the commodity-type stocks are a top-performing group in 2006."

In much of the rest of the world, however, gold's enduring reputation as "world's best money" makes its prospects a bit brighter.

"Gold remains a form of money, and in much of the emerging world where they don't trust what comes out of the A.T.M. machine, people may buy an extra gold bangle and store it as money," Mr. Sturm said. He said, too, that energy producers in the Middle East and elsewhere were prone to buying gold with surplus cash, of which they have plenty these days.

His bet on precious metals is also a hedge against unforeseen negative events. "Gold is the best form of insurance when you're not sure what you're insuring against," he explained. Among the miners of precious metals in his portfolios are Buenaventura in Peru and Impala Platinum in South Africa.

John Hill, an analyst at Citigroup, says he also thinks that the rally in gold has further to go. He has told clients that prices have continued to climb against an economic backdrop often associated with weakness for the metal, including rising interest rates, controlled inflation and a stronger dollar.

"We continue to be positive on gold," he wrote, citing "healthy underlying supply-demand fundamentals in the form of Indian fabrication, Chinese retail investment and recycled Middle Eastern petrodollar flows."

Yes, good insurance for when you're not sure what you're insuring against - that sums it up nicely. With rising rates, benign inflation, and a strong dollar, why is everyone buying gold these days?

It seems kind of silly.

On a related topic, here's a great ROB-TV interview with John Ing of Maison Placements in Toronto on the outlook for gold and the Cheuvreux report that was discussed here in Friday's post. Mr. Ing's interview appears as the ninth segment, marked:

11:13 AM ET
Business Morning with Jim O'Connell
Gold Glitters