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Sunday, March 22, 2015

Natural Resources and Beyond

Every news source I hear tells me that oil and natural resources are going to be depressed for years to come.  While I can't say what will happen, when I hear such a chorus telling me all the same thing about the future it does raise questions.

Looking at the charts, lets see what we can gleem as likely next few years.

First, lets talk about the US Dollar.  Even mainstream news tells us how much the US Dollar has been gaining value compared to the world.  It is quite possible USD will go 50% higher from here.  But lets take a look at the last year.

Since about August of 2014, the USD has been on a tear!  If you follow currencies, this change is very dramatic, but not unprecedented.
Recently the USD has been pulling back, but I dont expect a straight down line, this may take 3 months to a year to return to 80 range.

So what did the overall US stock market perform during the same period?
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The overall market went from about 1860 to 2115, about 13% rise.  During same period USD went from 80 to recent high of 100. about 25%.  This alone does not tell us much, except as the world entered a recession, the US attracked investors as haven of stability driving currency and stock up higher.

How did natural resources do?

The world entered a recession, and China is a HUGE driver of natural resources.  Overall natural resources collapesed, from about 310 down to about 210.  Pretty huge drop.  To give context, here is CRB over last ~8 years.

We are at a near 8 year low, comparable to the 2008 crash.  

Gold is a subset of this, how did that do?

Considering how STRONG the USD was, and commoditied TANKED in the last year, gold has been relatively flat. 1300 down to 1200 range.

How has Gold miners fared?

Gold miners are also at near lows, not seen since 2008 crash.

So what can we say absolutely about all this data?

RELATIVE to last 8 years, natural resources are near a LOW, as also GOLD MINERS (GDX).
That during the last year as USD rocketed, gold valuation kept about parity value.
USD, if going to return closer to valuations a year ago, indicate Gold will appreciate. (as gold is priced internationally like all resources independant of USD valuation).

If buy low, sell high is a strategy, all things point that Gold Miners are near decade lows.  Doesn't mean that miners will head higher, could stay here for 20 years.   But risk of devaluation from here is much smaller than most of the last decade.

The Federal Reserve Bank was dovish, basically indicating interest rates won't rise until winter at earliest.  We are witnessing a huge game of chicken across all countries.  Good luck!