If history is a reliable guide, ten years from now the price of commodities will be much higher and the price of stock markets will be much lower.
For the past 50 years, commodities and the stock market have been inversely correlated. The stock market in real terms rose very significantly and, over the same period, the commodity market as measured by the CRB Index, declined to a multi-generational low in 2001.
If it is true that China and India are emerging, then volatility aside and there will be some the demand for finite commodity resources will grow very considerably. If one was forced to make a decision today to buy any type of investment and hold it for ten years, we believe that commodities would be one of the most obvious choices.
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If a global recession is likely, and we believe it is, then there will be a significant pull back in the price of these types of investments which will then trigger the opportunity to reinvest, not just in energy but in other commodity-related investments. This sector, in due course, will constitute a major core holding of successful portfolios.
Gold bullion in particular might be on the edge of something big. For ten months now, the price has remained within a tight range from which we expect a break to the upside. Breaks such as this can be likened to a tight spring being released. Above the level of $456/oz, we would expect $500/oz to be hit very quickly. The gains for the Merrill Lynch Gold & General fund and gold mining shares generally would, in such an event, be very considerable.
By R H Asset Management, in the Onassis newsletter, a fortnightly newsletter that gives insight into the investment markets For more from RHAM, visit www.rhasset.co.uk
