Has the Commodities Bubble Burst? No, No, No!

September 16th, 2006

September 16, 2006 -

Everywhere in the media, you have pundits saying that the commodities Bull Run is over - including even chief global economists of major investment firms like Steven Roach of Morgan Stanley. They’re all wrong. This is a case of everyone panicking from sharp corrections that no doubt have caused millions of people world wide some mental anguish and hand wringing. But not me. I’ve dug deep enough down into the rabbit hole to know that gold will rise much much higher in the future. In fact if you go back and read my earlier blogs and ezines (for my ezine subscribers), you’ll see that when gold was at over $625 an ounce I said that gold was heading lower than $600 to test its June lows of $570 and possibly head lower. And I still think that we haven’t seen the end of the correction in gold. Yes, oil has slipped to below $60 a barrel but again, this doesn’t mean that oil is done either.

Historically commodities have always experienced steep corrections even in the midst of bull runs but when it happens, people tend to throw history out the window and throw in the towel, only to miss significant runs higher. As I primarily follow gold and not oil, I’m not going to make calls on oil but for people to say the gold Bull Run is over merely say that (1) to protect their firms in case gold does indeed head lower and (2) because for the media, such sensationalistic headlines “sell”.

I am always amazed at the lack of good analysis that the mass media bombards individual investors with. Today, I found this analysis on CBS Marketwatch:

“Gold’s front-month price rose as high as $728 an ounce in mid-May, the loftiest level since Sept. 1980. It was worth $300 or so four years earlier, but closed at $583 Thursday.” I consistently read analyses that compare prices and all time highs and lows as if inflation does not exist and as if the purchasing power of the U.S. dollar has been constant for the past 25 years. They compare dollar figures that are meaningless because $1000 today could not buy what $1000 in 1980 could buy. If these financial journalists ever took an Economics 101 course and understood the simple concept of the time value of money, then they would realize that all of their analysis is worthless and meaningless.

So the moral as it always has been is don’t be influenced by “pundits”, by the media or by your neighbors when making major investment decisions. Take the time to understand the true implications of economic cycles yourself and you won’t panic sell but will truly be able to build wealth over time.

In Zen, there are many well known fables about patience. When investing in commodities, insight and patience will serve you best. Stay calm when others panic. My first sensei told me that everyone that ever came to him and asked “How long before I can get my black belt?” never stayed very long after being awarded their first dan. Why? Because he said that these students looked at martial arts as a sport. They didn’t have the wisdom nor the patience to understand that martial arts is a life long commitment. That the goal in martial arts should never be to achieve a certain ranking or belt but to develop into a wiser, more compassionate and more complex human being. Those that were patient, that weren’t rushing to achieve their first or second dan, were over time, the ones that became the best most enlightened and most skilled martial arts practitioners. This is a philosophy that can very well extend into the “art” of investing and lead to sound decisions as well.

Maholo, KAEHO

Entry Filed under: Investment Psychology, The Biggest Investment Myths, Gold Investments, Oil Crisis, Wealth Literacy