It was early 1988. The U.S. House of Representatives rejected President Ronald Reagan's request for $36.25 million to support Nicaraguan Contras and I could have cared less. That's because I was too busy living the 80's life.
It was sometime in late January when I went to a friend's house where he was having a party. I had never been to his house before and didn't know my way around the neighborhood so I showed up fairly late.
When I arrived, the party was in full swing. I worked my way through the smoke and hairspray, through the sea of acid washed jeans and florescent hoop earrings, down to the basement. There, someone had told me, was the keg.
As I poured the already half-flat brew into my cup, my buddy, who was throwing the party, greeted me. He asked me about my new car. I had just bought a 1986 Camaro IROC Z28. Back then that car was bad to the bone. So I asked my buddy if he wanted to go for a quick ride to which he replied, "Sure, why not?"
So we hopped into the car, I threw key into ignition, I cranked up the Crüe, and we took off. And it wasn't five minutes down the road I hit an ice patch. The car spins a 360 and smashes into a telephone pole.
I bust out of the car, and not even thinking about bodily injury, I scream out something to the effect of, "MY CAR!", plus several obsentities.
Fortunately, we weren't hurt.
That was 17 years ago. I thought of this incident when I read a headline yesterday that said gold was at its 17-year high.
But it not just gold that's rallying right now, it's all commodities.
And author of the widely read book Hot Commodities, Jim Rogers believes that this is the fulfillment of his prediction.
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Birth of a Bull Market
Jim Rogers' baby is almost 8-years-old.
Back in 1998, when stock brokers were cold calling naive investors about a "hot tip" about a new Internet company selling crocodiles online, commodities trader Jim Rogers was noticing something...
Commodities had become the red-headed stepchild of the Internet bull market. According to Rogers they, "got no respect."
Back then, we heard commodities were dead. Oil, trading for $11 a barrel at the time, was headed for $3 a barrel, one stock market "guru" wrote.
Gold was worthless...an ounce wouldn't buy you a decent suit anymore. Natural gas was so cheap, utility companies were practically giving it away.
Gold and silver explorers closed up shop because it cost more to mine the stuff than to sell it. But, even more telling to Rogers, was the fact that major Wall Street institutions were literally closing up their commodity trading desks.
Nobody could make money trading commodities anymore.
That was the sign Jim needed.
(I should also tell you that our own commodities Cassandra, Mike Schaefer, was echoing those same sentiments.)
When the strongest of the strong hands in the market throw in the towel, that's the birth of a new bull market. This happened in 1998.
Rogers immediately put it in high gear and started a new commodities business.
When Rogers told people he was starting a new commodities index, people laughed. Today, he looks like a genius. And he is.
The commodity bull market that Jim called in 1998, is now 8 years old and gaining steam.
If you believe Jim (and I do), the commodities bull market is in the 4th inning of a 9-inning baseball game. Jim believes the bull market will last 15 years. So, as of right now, the bull market is at a halfway point.
I disagree. I believe the game is a double header.
Let's take a look at the price action of the commodities.
Gold rallies near 18-year high
Gold closed yesterday at their highest level since late 1987. October futures soared past $470/oz in New York as investors worried about the U.S. economy. The recent surge of energy prices renewed concerns yesterday of increased inflation.
Gold is always considered a safe investment. The yellow metal is unaffected by the inflation that can hamper returns on things like equities.
Bullion prices have jumped some 12% in the past three months as oil, gasoline and natural-gas have soared to record highs. Some investors buy gold as a hedge against rising consumer prices. Hurricane Katrina, the costliest natural disaster in U.S. history, drove consumer confidence to the lowest since 1992 and led analysts to cut estimates of economic growth.
Demand for gold in China and India are also major factors in the recent price. And investment demand from ETFs continues to be a strong driver for gold.
Gold is in a major break-out mode. The next support challenge is $475. Then $500 will be targeted.
$500 gold would stimulate increased mining, but at the same time cause a decline in the demand for gold for jewelry fabrication.
Silver Demand Soars in China
December futures for the white metal opened today at $7.40/oz on the COMEX, only ten cents under the metal's 65-day high. But this is only the beginning of a silver rally.
Silver prices will rise over the next five years as demand in China expands faster than domestic supply.
Analysts say that Chinese silver demand will jump to about 6.3 million pounds by 2010, from 3.5 million pounds last year. The increase would make China the 3rd biggest consumer of the metal behind the US and Japan.
China's $1.65 trillion economy, which grew 9.5% in the second quarter, is already the world's biggest consumer of commodities such as steel, copper, tin and iron ore. Prices for most of these commodities have reached record levels in recent months as producers have failed to keep up with demand.
The 1.3 billion consumers that make up China's population are likely to buy more jewelry as they become wealthier. And silver, that costs about 63 times less than gold and 127 times less than platinum, will attract younger buyers.
"By 2010, we expect China to be using more silver than it mines."
- Tim Spencer, senior metal analyst with a London-based group
Silver is also used in consumer products such as electronics and in photographic film. And as in the case with jewelry, sales of these products are also likely to expand as China's wealth increases.
The global demand for silver was over 52 million pounds last year. 44% of that came from industrial applications and the rest from photography and jewelry.
China's stockpiles of the metal have been hit hard, thereby increasing the likelihood it will have to source its supplies from abroad. Experts estimate that China's silver inventory may be as low as 4 million pounds.
Platinum hits 17-mth high
Platinum hit a 17-month high of $937/oz by mid-morning today.This is platinum's highest price since April 2004, when the metal rose to a 24-year high of $942.
Precious metals have been following gains in gold as jitters about inflation and uncertainty over the U.S. economy ignited fund buying.
Experts are saying that platinum could spike above $950/oz or even above its previous all-time high of $1 040, achieved in 1980, as early as October.
Loonie hits 13-year high
The Canadian dollar soared to its highest level in more than 13 years, on expectations surging commodities prices will spur economic growth.
The loonie rose as high as $0.8571, its highest point since Jan. 24, 1992. The currency closed at $0.0557 U.S. cents, up substantially from Friday.
Crude oil, which has been tied to the dollar's climb in recent months, jumped by $4.39 a barrel yesterday amid concern that a Tropical Storm Rita could cause supply disruptions in the Gulf of Mexico.
U.S. interest rates expectations also supported gains.
Raging Bull
It was several weeks ago that Mike Schaefer told readers that he thought the TSX-Venture exchange was about to rebound and begin a massive rally.
He was right. Take a look at a chart of the index:
As we speak, the speculative, natural resource stock heavy TSX-Venture is sitting at record highs.
Look for more gains in the coming weeks.
