Here is what the Stalwart had to say:
“But John Bergthiel of JP Morgan points out that some metals seem to be rising in price, regardless of their supply-demand mechanics. In copper, for example, inventory levels appear to be equal to just two weeks’ demand, so a price squeeze is understandable. But in nickel, inventories are equal to 11 weeks’ demand, and it is still being pushed higher.
Something else is clearly going on. The answer seems to be that institutional investors are increasingly moving into commodities, having become convinced that they offer returns that are both attractive and, importantly, not correlated with other assets.”
I agree that you should stay away from industrial commodities, especially the ones that have gone up a lot. This field is something for insiders (e.g. commercials), who know a lot of details, and might hedge or SPECULATE. Even though I own some futures myself, I can call it nothing other than SPECULATION.
These are the potential risks:
-Demand is slowing due to world recession.
-Demand is slowing due to more efficient use.
-Supply increases due to more efficient production or increaed by-products.
-Industrial commodities have NEGATIVE YIELD, since they degrade and are costly to transport and store.
-Unless futures trade at “backwardation”, you pay more for futures than for spot. Again NEGATIVE YIELD.
-There will always be replacements to be found for one commodity if it gets too expensive (see Palladium).
-There will never be long-term investment demand. It is a waste to hoard these materials.
I am not saying they can’t go up more. I am just saying this is not worth jumping on a bandwagon.
Jim Rogers might be right, since his index also owns agricultural commodities and gold and silver, and everything will go up more or less during inflation.
But you must beat inflation not trail inflation to come out even!
