There is perhaps no better time than the present to be heavily invested in commodity stocks. The bull market in resources is destined to be historic, as a convergence of many, many factors drives the demand for commodities to record levels in the face of diminished supply. This bull market is probably going to be longer, and more extreme, than ever before. Gold has already risen for ten straight years, with no sign of letting up. Commodity stocks, apart from call options, are the best way to leverage this move.
Commodity Stocks Understood By The “Natural” Natural Resource Cycle
Commodities generally cycle on their own anyway. We move from point of scarcity to places of over-production. Proper positioning of your money in commodity stocks within that resource cycle is what can lead to abnormally high profits. When there is more than enough of a given commodity, the excess supply floods the market, overruns demand, and prices are lower. In natural resources and other commodities, very low prices can put miners and resource developers in the bleachers. When the market price is too low for the producers to generate resources profitably, they go away.
Understandably, the now-constricted supply strips the market of the excess resources. With any surplus gone, it’s not uncommon for the above-ground reserves to be tapped. Once those dwindle, there’s nothing left to fill the gap. Now, even with demand that isn’t rising, a steady demand will cause prices to rise and the same number of consumers vie for the decreasingly available precious commodities. As you likely predicted, the rising price again makes it possible for miners, for example, to produce zinc, copper, or precious metals profitably.
Thus, they again contribute to the supply side of things and the cycle begins again. The money is made by buying when others are selling. It can be tough to do with herd mentality so profound. But picking up resources when the masses are ignoring them is the best way to buy cheap. Add a dose of patience, then profit. The patience is required because sometimes the bear market is so substantial that the infrastructure and human capital can disappear. So, it’s not like a mining company can be up and running overnight because it’s finally convinced the higher prices are likely to hand around for a while.
Commodity Stocks In Light Of The “UnNatural” Natural Resource Cycle
As is often the case, there are some exceptions to the rule. Not all commodities will track this type of predictable cycle. Some commodity stocks will not necessarily track the ebb and flow of surplus and scarcity. For instance, OPEC is so influential regarding the oil market that it can simply choke back production, or simply withhold oil, and thus the oil price can be kept from dropping too low. Whether or not they choose to exercise that influence is a distinct issue. But the point is that some resources, including diamonds as well, can buck the resource cycle “rule” due to these unnatural market factors.
Commodity Stocks And The Unusual Factors We Face
At this point in history, the resource cycle equation is a bit more complex. Accordingly, your decision to invest in commodity stocks should be driven not only by the natural cycle and any undue influence that can affect price, but also other realities that can affect the cycle. Specifically, we now have to strongly consider the role of emerging markets. Key nations around the world are modernizing, and their citizens are upgrading their quality of life with products and services that require resources.
The United States used to be a point of reference, as it was the largest consumer of commodities. This is no longer true. Countries like Russia, China, India, and Brazil are expanding infrastructure and upgrading lifestyle. The heightened demand, indeed voracious appetite for natural resources, has blown demand way past the steady requirements that allowed for the typical cycle. These days, the standard expected glut of raw materials and commodities that would ordinarily put some producers on the sidelines is not so forthcoming. Consumers are raising their hands to request resources faster than they can be produced.
As just one example, China used to mine rare earth metals very inexpensively as a mine by-product, and so it kept prices low and explorers and developers of such mines out of business. Today, China has significantly reduced exports and now consumes a large amount of the REEs it produces. On top of billions of additional people now wanting gadgets with REEs in them, the number of uses for REEs is skyrocketing. They are now critical to a number of consumer and military items. Uranium shortages in light of the explosion of nuclear power are yet another example. The Japan sell-off is short-term, making them some of the best stocks to buy now.
Commodity Stocks And The Manipulative Factors We Face
To add to the complexity of investing in commodity stocks, there are still other factors that weigh in. Sometimes commodities will undergo price suppression for political reasons, such as elections. Friends of the Federal Reserve, such as J.P. Morgan Chase, may engage in boundless naked short-selling of silver, using this “paper” silver to artificially beat down silver prices and prop up the dying U.S. Dollar. Central banks may sell gold to flood the market with supply and ratchet down escalating price increases. These machinations will not ultimately prevail, but they do muddy the waters and lengthen the timelines. This calls for expert guidance when investing in commodity stocks and resolve to win big.