History Should Serve As A
Guide To This Wild Ride
Emanuel Balarie
Sep 12,
2007
Even though I have not posted
commentary in the last few months, I have been keenly aware of
the wild ride that has occurred in the commodity markets over
the last couple of months. The major sell-offs, that have occurred
in nearly every sector, have left many commodity bulls around
the world asking the following question: Is this bull market
in commodities finally over?
To be fair, there is some validity to this question. If one was
to exclusively look at the losses they have suffered in their
portfolios or even charts of these markets in the last few months,
the outlook has looked pretty grim. Nonetheless, investors have
had a choice to either stay focused on fundamentals or simply
exit right alongside the herd.
Before you decide to exit... consider the following historical
example.
"During the first stage
of the 1970s gold bull market, the price of gold moved up from
$40/ounce to $199/ounce. The move up, however, did not happen
overnight. It took about a couple of years for the price of gold
to finally close at just below the $200/ounce level. In 1975
the price of gold then sold off sharply, falling to just below
$110/ounce. While this decline was substantial, especially in
the moment, it ultimately just represented a correction in a
substantial multiyear bull market. In the 1970s, generally two
types of investors participated in the gold market. The first
investors purchased gold solely for speculative reasons. In other
words, they had seen the price of gold appreciate from $40/ounce
and simply wanted to participate in upcoming profits. Beyond
this, there was no basis for their purchase. The second investors,
however, purchased gold because they understood the fundamentals
that were driving prices higher. For instance, these investors
understood that the inflationary pressures would only intensify
and that demand for the metal would continue to increase. As
a result, they were confident that their long-term investment
was supported by fundamental factors.
"When gold prices corrected from their high, the first investors
panicked and sold their positions. In fact, I am sure that many
investors happened to get in right at or near the $199 high;
this seems to be typical for investors who chase returns. The
second investors, however, had a firm grasp on the fundamental
factors that were driving the price of gold. Thus, they held
on to their positions. In the end, they were able to profit handsomely
from a metal that eventually reached $850/ounce in January 1980.
I bring this example up so that you can have an understanding
of the dynamics of this commodity bull market. We are in the
midst of a long-term bull market that will likely last for another
10 years, but there will also be moments where the commodity
markets will experience some pretty significant sell-offs. Does
this mean that you should panic? No. Does this mean that the
bull market is over? No. As long as the fundamentals are still
intact, you can expect commodities to continue their bull run.
And it is precisely for this reason that you must understand
the fundamentals that are driving this commodity bull market."
The above is an excerpt from
my new book, Commodities For Every Portfolio: How To Profit From
The Long-Term Commodity Boom. (Wiley 2007). If you are
interested in learning more about why we are still in the early
stages of this commodity bull market and why commodities belong
in every portfolio, I encourage you to order my new book here.
In addition, if you are interested in finding out more about
[what] the book is about, you can read the
preface exclusively at www.commoditynewscenter.com.
Lastly, I am also offering a free commodity newsletter filled
with market analysis and recommendations-- you can sign up here:
Note: I am no longer affiliated with Wisdom Financial.
If you signed up for my newsletter in the past, you must sign
up again.
Emanuel Balarie
email: ebalarie@commoditynewscenter.com
website: www.commoditynewscenter.com
Balarie Archives
 Emanuel
Balarie
is President and CEO of Jabez Capital Management. In addition,
he is also editor of www.commoditynewscenter.com and the author of Commodities
For Every Portfolio: How To Profit From The Long-Term Commodity
Boom.
Mr. Balarie's industry experience ranges from commodity stocks
to futures to alternative investments. He is a highly regarded
advisor to clients and institutions on the commodity markets,
and has had his research published all over the world. In addition
to being a regular guest on CNBC, Balarie is frequently quoted
in financial publications such as, The Wall Street Journal,
Reuters, Marketwatch from Dow Jones, and Barrons. Mr. Balarie
is a graduate of UC Berkeley.
For more information
on Emanuel Balarie you can visit www.commoditynewscenter.com or email him at ebalarie@commoditynewscenter.com
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