When I was in the 9th grade, one of the classes I took was called Introduction to Business. I clearly remember one day they wheeled in the TV and played a National Geographic special called "Gold!", which was a breathless documentary about gold and its import to the world. The teacher also handed around a Krugerrand he had brought into the class. As it was being passed from student to student, he told us how "gooooooood" it felt to hold. The fact I remember it after all these years speaks to the experience. This is what gold looked like at the time of this little event in my life………..
What I didn't realize at the time is that when gold mania reaches so far down that 9th graders are talking about it, the mania is probably pretty near the end. I daresay the red circle, drawn below, is roughly where this little talk took place in my class.
As you can see from the graph above, gold spent the next two decades doing absolutely nothing (there were gyrations along the way, but gold bugs spent all the 80s and 90s being disappointed).
And it isn't that gold was the only commodity in history to experience a bubble. Even something as pedestrian as sugar made the late 70s run in gold look like nothing. Just take a look at this:
…….but yet again………..
Does this mean that everything that goes up goes right back down? No. But, unlike stocks, commodities do tend to be relatively cyclic and price-bound. In other words, a stock like AAPL which goes from $5 to $200 isn't necessarily doomed to returned to $5. But something like Gold isn't going to go to $1,000 and stay there forever.
Now, just to be clear, I look at futures simply as an interested chartist. I've never traded a futures contract in my life. I'm more interested than usual in commodities these days simply because of the huge bull run in commodities that we've seen the past few years. But I think it would be instructive, especially for those that don't typically follow futures, to take a look at a few of these charts. Please keep in mind that these charts span decades.
First, here is Corn, which is near highs never seen before, and even pierced that multi-decade upper trendline.
Of course, there's crude oil, which in 1999 was approaching $10 per barrel (seems like science fiction today, doesn't it?) People used to think about triple-digit crude prices as something unfathomable, but it seems we've all become accustomed to them very quickly. But in this entire graph, there has never been a market like this for energy (the Gulf War in 1990-1991 was just a blip in the grand scheme of things).
And our old friend gold, which has exceeded the (admittedly not-adjusted-for-inflation highs) levels set nearly 30 years ago.
And, the highest flier of them all – – of all things – – wheat:
When is this all going to end? No one knows. After all, gold went up eight-fold during its last madness in the late 70s, so an eight-fold run this time would push it to $2,000 per ounce. And some very smart people – like Jim Soros – believe the "big top" in commodities is still years away. But I can't help but be skeptical of how much more these markets can run.
