Tuesday , 26 September 2023

Commodities Primed For the Best Bull Run In 50 Years! Here’s Why

The S&P GSCI – which tracks prices for 24 commonly traded commodities relative to the S&P 500 – is the most important chart in the resource space today and it’s telling us that commodities are primed for their biggest rally of the last 50 years.

Take a look below as to why this the best setup for commodities in half a century.

When the blue line on the chart is rising, commodities are getting more expensive relative to the S&P 500 – a good proxy for the U.S. stock market. When the line is falling, commodities are getting cheaper relative to stocks.

  • When commodities are at historic lows relative to stocks [green circles on the chart], it’s been a great time to buy. For instance…between 1971 (when we went off the gold standard) and 1974, the S&P GSCI rocketed 371% higher. and, from 1999 to 2008, it shot up 454%.
  • When commodities are expensive relative to stocks history shows you don’t want to be loading up on commodities. For instance, the S&P GSCI was at an extreme high relative to stocks [red circles on the chart] in 1990, at the peak of the Gulf Crisis, when Saddam Hussein’s army was rolling into neighboring Kuwait. That was a terrible time to be a commodities buyer. The S&P GSCI plunged 70% from the end of September 1990 to December 1998. Another peak for commodities relative to stocks was in 2008, at the start of the global financial crisis and, again, that was a terrible time to buy commodities. From July 2008 to February 2009, the S&P GSCI experienced a 65% peak-to-trough fall.

If past is prologue, that means commodities are primed for another explosive bull run.

  • Today, the ratio of the S&P GSCI to the S&P 500 is 0.9. The average ratio going back to 1970 is 3.9. In other words, the commodities sector is currently 77% below its average price relationship with stocks over the past 50 years and it’s lower, on a relative basis, than it was ahead of the big commodities rallies in the early 1970s and the early 2000s.

…If you filter out the noise and just buy when commodities are historically cheap relative to stocks [like they are now then] you’ll do very well indeed. You only need to invest a little bit of money to take advantage of this historic setup.

Editor’s Note: The above excerpts* from the original article have been edited ([ ]) and abridged (…) for the sake of clarity and brevity. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

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(*The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)

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