are a hot item and they are set to stay in high demand for years to come.
world, especially China,
has been growing and using lots of raw materials. China's commodity imports
alone have grown more than tenfold over the past 15 years, as you can see on Chart
1, and so far this year China's oil imports are up by about 10%. With its
robust economy showing no signs of slowing, demand for commodities will
continue to outpace the limited supply in the years ahead.
producers have been scrambling to increase supply but it's a slow process
that takes time. In the 1980s and 1990s, for instance, many mining and oil companies
could barely make ends meet with the low prices at the time, which left
little room to expand and open new mines. This has left a gap between growing
demand and limited supply.
prices will eventually slow demand but so far it hasn't. The oil price, for
example, remains near record highs and copper has stayed stubbornly near its
highs, in spite of its 186% jump from May 05 to May 06.
is the best barometer for world economic growth because it's used in many
areas of construction and it remains very strong, but it's not only oil and
copper... Many of the raw materials are also on the rise with nickel now
hitting a 19 year high.
for gold, investors are moving into gold, in large part thanks to the
exchange traded funds which makes it easy to buy
gold and silver. These funds are enhancing the bull market and this alone is
causing a huge demand in gold that wasn't there before.
of commodities in general has doubled from 2001 to 2005, while hedge fund
investments in the energy market are up from $3 billion in 2000 to about $70
billion in 2005. This sector is growing and it's set to continue growing in
the decade ahead. This is part of the 200 year commodity cycle that we've
often discussed. And it's why we will continue to recommend gold, silver and
their shares, as well as energy and resource shares for as long as the major
Holding Near The Highs
remains strong and frankly, there is no reason why oil will weaken
significantly. On the contrary, the Middle East
is the major oil producer in the world. And since instability persists in the
region, the oil price will stay high.
is the base for the world economies today. The largest consumers are the U.S. and China
and world demand is growing by leaps, while supply is mainly in troublesome
areas or areas that are unfriendly to the U.S. Any disruption in supply or
a threat of this will push oil up.
latest example was the war between Israel and Hezbollah, which kept
upward pressure on oil. Then there's Iran, a huge oil producer, which
continues to create tension over their nuclear program. At one point, they
threatened to cut their oil exports if UN sanctions are imposed and these
ongoing tensions are bullish for oil.
has also been talk of several countries wanting to buy their oil in euros. If
countries start building their euro reserves (less
dollar reserves) and buy oil in euros, it wouldn't be much of a change for
them. But for the U.S.
it would be damaging because it would mean the U.S. dollar would be losing
its reserve status as countries would then hold less dollars in their
reserves. This is already happening to some degree. And if it continues, it
would not only cause the dollar to plunge but it would also be a major
problem for the U.S.
debt and economy.
Charts 2A&B shows the
close relationship between gold and oil. They tend to move together. A higher
oil price is inflationary and gold rises when inflationary pressures are
present. Since 1999 when oil started its assent, oil has outperformed gold as
you can see on Chart 2C;
when the ratio rises, oil is stronger. This year, gold has been stronger than
oil but the major trend still favors oil, which
means it'll likely remain stronger than gold.
oil and gold moving in tandem, and gold starting a renewed rise, it's signaling that both of these markets are headed higher.
Oil could easily hit our $80 target once a record high is reached, while gold
is now poised to move up in a strong rise.
renewed rise is clearly underway (see Chart 3A). It recently reached a
10 week high and it's leading gold in this renewed
rise. Silver's decline since May reached an oversold area, the most since
2004, which means silver has plenty of room to rise further while the
long-term indicator remains solidly bullish (see Charts 3B and C).
major trend is clearly up above $9.40 and it's poised to reach or surpass the
May highs near $14.88. Silver is used in industry and it also plays a role as
gold's little sister in times of uncertainty. This could explain why silver
has been stronger than gold since 2003 and why it's recently been
outperforming gold (see Chart 3D).
and palladium also remain strong, which backs up the bull market. When all of
the precious metals rise together, the bull market is strong and that's
what's currently happening. So stay invested in these markets and if you're
not in yet, now is a good time to be buying new positions.
Anne and Pamela Aden
Editors, The Aden
Mary Anne and Pamela Aden are internationally
known analysts and editors of The Aden Forecast, a market newsletter
providing specific forecasts on gold, gold shares and the other major