Jim Rogers, ‘the Chinese-driven commodity boom is not over.”
Savvy commodities analysts and participants including Jim Rogers have seen long-running Bull Markets stumble, falter and end, and some not so savvy folks try to predict their end, mostly missing the call. Instead of ending, the Bull Markets turned into a “frenzy” that finished in a “bubble.”
“I haven’t seen the frenzy yet,” say Mr. Rogers, who correctly predicted this Chinese-driven a commodities boom. ”I’ve been around markets long enough to know that when everybody’s on one side of the boat, it’s probably not the right side to be on.
“I don’t see enough supply having come on stream in most commodities to end the Bull Market,” Mr. Rogers says. “Agriculture inventories are near historical lows because the world has consumed more than it grows for a decade now. Many minerals companies have canceled capital spending programs because they, too, have heard from Wall Street that the boom is over.”
Mr. Rogers likes raw Sugar and Nat Gas because their prices are depressed in here. While Sugar has been up the past few years, “it’s still down 75% from its all-time high.”
Regarding Nat Gas, he notes, “Many drillers have had to reduce their reserve estimates, and we are finding that production declines very quickly in shale Gas wells. When I see a company like Shell taking a $2-B write-down on its shale Gas assets, I take that seriously.”
Mr. Rogers believes “we’re going to have huge problems with agriculture and food in the next decade.” One way to take advantage of this problem would be to invest in farmland, agricultural commodity indexes and stocks of seed and fertilizer companies.
Expecting the Bull Market in commodities to last, Mr. Rogers works in Singapore in order to be closer to China.
“China has been trying to slow its economy for quite some time now. They’ve had an inflation problem. They’ve had a real estate bubble. But I know . . . that something positive is going on in China and has been for a while. They are growing, they have a high savings rate, they have a high rate of investment, and they have huge international reserves,” he says.
“The last time I bought Chinese stocks in a big way was November 2008. If and when there is a panic, I hope I am smart enough to buy again. My Chinese shares are not for sale. That does not apply to anything else I invest in,” Mr. Rogers notes. China is the Key to supporting commodity prices, especially Gold.
Chinese demand for the precious Yellow metal has prevented Gold prices from falling. Its Gold imports have almost doubled this year, and the country is on track to become the largest, producer, consumer and importer of Gold, overtaking India as the #1 consumer.
“I don’t think we fully understand the size and the appetite of the Chinese market and its implications for the global price,” Jeremy East, global head of metals trading at Standard Chartered (LO:STAN) said at the London Bullion Market Association’s conference in Rome.
The Big Q: were would the Gold price be if China had not come in and taken it up?
The Big A: without China’s participation Gold may have tested its big support mark at 960/1,050
Investors should be aware that some big Gold holding may be reduced if the US Federal Reserve pares its economic stimulus effort (QE-3). If and when that happens, Chinese demand may not be able to support Gold prices further.
The problem is that much of the demand from China is related to the fall in Gold’s price.
Like the central bank purchases China’s consumers have helped establish a higher floor but they will not on their own drive Gold back up on a sustained basis. Stay tuned…
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chow@royalindexuae.com
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