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An article in The Wall
Street Journal highlights the
latest rise in the price of wheat. Blaming bad weather, it notes that
the “global wheat market is caught between freezing winds and a
sirocco.”
The WSJ
therefore warns that “investors should beware of whiplash as weather
normalizes.” Given that wheat is “up 13% since the start of
December”, it is good advice – if weather were to blame.
The reality
is that wheat is being driven higher by more than bad weather. The
price of wheat has been climbing since June, a fact conveniently ignored in the
WSJ article, perhaps because it doesn’t square with its premise that
bad weather is causing higher wheat prices. Are we to believe that the
market knew seven months ago that weather around the world today would be so
bad that it would impact global wheat output? Or has wheat –
which has risen $3.50 per bushel, or 70%, since its
June low – been climbing steadily higher over these several months for
another reason? And more to the point, why are all commodity prices
rising?
For
example, since June copper has risen $1.70 per
pound, or 59%. Is bad weather to blame?
No, of course
it isn’t. Something else is at work here. Maybe wheat has
risen more than copper over this period because bad weather really has had
some impact on wheat production. But obviously, given that
commodity prices are rising across the board, we have to look for other
factors that are causing this surge in prices. And we do not need to
look too hard. Just consider the money printing – a/k/a
“quantitative easing” – by central banks going on all
around the world. QE is building up tremendous inflationary pressures
in the pipeline of goods and services, which for months now has been showing
up in the area most sensitive to monetary debasement, namely, commodity
prices.
The WSJ
article ends by warning that “political storms could provide a tailwind
for wheat prices.” That could be, but right now, the gathering
monetary storm is far more important, and there is one easy way to seek
shelter – buy physical gold. Look at the correlation between gold
and the CRB Continuing Commodity Index in the following chart.
The above
chart makes one point crystal clear. Rising commodity prices are not
short-term phenomena. Except for a brief deflationary blip in 2008 after
the collapse of Lehman Brothers, this CRB Index of 17 essential commodities
has been rising steadily all decade – and it is meaningful to note, so
too has gold.
So I
wouldn’t worry about any shortage of wheat, provided you own physical
gold. Farmers will continue to grow produce, and the market in which
money is exchanged for food will continue to function as it has since
humankind began to interact in commerce thousands of years ago. So
regardless what happens to the price of wheat, you will continue to buy bread
in the future just like you do today, provided you have physical gold to
preserve your purchasing power from the ongoing debasement of national
currencies being engineered by governments and central banks
James
Turk
All data and quotes sourced from Reuters.
Published by the Free Gold Money Report.
Copyright © 2010. All rights reserved.
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