Market Musings 031222 Part 2:
Gold
Gold is glittering again.
Commodities - a long-shunned asset class
Commodities have been neglected by investors for over a decade now, and for the large part for good reason. As an asset class, commodities have been very poor performers since 2009, falling 75% from peak in that year to a pandemic low in 2020.
CRB Commodities index very poor since 2009 peak
Source: tradingview.com
In fact, the best thing an investor in a diversified portfolio with a diversified portfolio could have done as regards commodities was to ignore them from 2009 at least until 2020.
But remember the economic context. We had pretty much zero (or even negative) interest rates on the back of ultra-low inflation. In fact, I remember a number of commentators published articles and even books declaring that inflation was dead. How wrong could they have been?
On top of that, you had moderate economic growth. So this sort of a “goldilocks” economy (i.e. not too hot, not too cold) of moderate economic growth with no obvious signs of inflation, made the life of central bankers and the job of central bankers very easy indeed.
At the same time you had an abundance of liquidity and abundance of production of a variety of commodities, notably energy, metals and other. But today that has changed.
We have become very acutely aware following the Ukrainian war, of shortages in energy, oil, natural gas, and therefore electricity. On top of that, we have tight supply in a number of base metals. Particularly with the energy transition in view, we are going to run up against shortages of copper, nickel, tin and other base metals which are related to battery construction.
Consider Precious Metals too
There is a third category that's probably the most interesting to me right now and still neglected, which is that of precious metals, principally gold.
Did you know that since the beginning of 2000 that gold as an asset class, despite its lack of income yield, has outperformed other major asset losses by quite a distance, whether that be global stocks, global bonds, global corporate credit, or even real estate.
Since 2000, Gold has far outstripped US Equities and Bonds
Source: tradingview.com
Admittedly, this performance tends to come in short bursts of…
