Editor’s note: Lately we’ve been pounding the table on gold here in the Market Minute. And for good reason… it’s just beginning what we think will be a massive bull run.
But the commodities space is much more than just gold. It’s full of beaten-down assets that could all snap back this year.
We want you to be able to take advantage of this once-in-a-lifetime trade. And Casey Research’s commodities specialist David Forest has all the details below…
The place looked like a nuclear blast zone.
With ox carts.
I was standing in a field in northern Myanmar, the Southeast Asian nation formerly known as Burma – a place I’d been investigating for mining opportunities. The 12-hour car ride up from the principal city, Yangon, was what I expected. We passed dilapidated villages, many of which were only then beginning to be connected to the national electric grid.
I thought signs of civilization would dwindle as we got further into the countryside. But when we arrived at our destination, I was shocked at what I saw.
Machine parts littered the ground: electric generators, jaw crushers, and sundry spare mechanicals. Firehoses crisscrossed through the mud, many half-decayed. There was turned-up earth as far as the eye could see. Some of the pits were hundreds of feet deep – making the area look like a bombed-out no man’s land from some unknown war.
The eeriest part? Despite the massive scale of activity suggested by the debris, there wasn’t a single person in sight.
Asking my guides what happened, I was told the area had been the site of a massive gold rush. But the miners had all gone now.
“Let me guess,” I said. “They started in 2011 – probably around October?”
The guides talked amongst themselves in Burmese. Then nodded.
“And ended… 2013, August?”
Once again, they nodded.
“Some continued until September,” one old-timer finally confirmed. “Were you here then?”
I told him I’d never seen the place before. But I didn’t need to see the local miners to know when they’d boom and bust.
I just thought of the price of gold…
You see, in January 2011, gold began a spectacular run – one that would take the metal from near $1,300 per ounce to as high as $1,900 by August. Leave a few months for miners to mobilize, buy equipment, and get land, and an October start made sense.
Then in 2013, the story was opposite. After starting the year at $1,700, gold began a tumble that would take it below $1,200 by June.
Local miners would have seen their profits evaporate nearly overnight as the gold price fell.
Even the world’s biggest mining companies had trouble turning a profit in late 2013. The little guys would have been crushed, unable to cover their costs for labor, diesel, and equipment.
I’d seen that same story play out from Colombia to Colorado to Cambodia. Prices go up, new mines open – prices drop, they close again.
It happens surprisingly quickly. And it’s one of the most important lessons for investors.
In fact, understanding this simple but powerful principle can make you an absolute fortune.
And it’s now more important than ever to understand what’s going on.
That’s because we’re entering what I believe will be one of the biggest investment opportunities we’ve seen in the current millennium: a major up-cycle in commodities.
My research shows that commodities as a group are about to enjoy a historic resurgence. The kind that has happened regularly and reliably throughout history, and which has made fortunes for early investors.
Now, looking at commodities today, you might not believe we’re at a bottom.
Most commodities right now are priced middle-of-the-road on a historical basis, if not a little on the high side.
Supply and demand figures also don’t show much cause for alarm.
But let me show you what set me and my colleagues into high speed…
You see, this chart shows clearly that commodities are indeed at a cyclical super-low. The kind that historically precedes explosive upward market moves with great reliability.
Take a look.
Plotting commodities prices versus other assets like stocks, we can see that hard assets are at a cyclical low right now
Here’s what you’re seeing in the chart above…
The black line is commodities prices – but not in absolute terms. Rather, we plotted commodities (as represented by the GSCI Index) as a ratio to stock prices of the S&P 500.
Why is this a critical distinction? Because, as I showed above, absolute prices of commodities right now appear to be at very healthy levels.
But when we look at commodities compared to everything else in the world, they’re ridiculously cheap.
Right now, the ratio of the commodities index to the S&P is below 1. The average of the same ratio since 1970 is 4.1 – meaning that commodities are more than 75% below the normal pricing that’s prevailed for the last 47 years.
In fact, this is the lowest the commodities-to-stocks ratio has ever been during this recorded period. Lower than the lows put in during the early 1970s or at the peak of the dot-com bubble in the late 1990s (both circled in green above).
Both of those periods were followed by an explosive reversion to the mean. Between 1972-1975, commodities, as measured by the index, soared 250%. Between 1999-2007, the gains were even more spectacular, with commodities roaring 400%.
And today, commodities are even cheaper – in relative terms – than before those two coiled-spring events.
I should note, this thesis is not one you’ll hear in the mainstream press. If you listen to the pundits on CNBC, you’ll hear sentiments like I mentioned above – prices are normal, supply is fine, demand is steady. Nothing to see here.
But my research shows they’re missing a crucial point: The trillions of new dollars created over the past decade have had a subtle but incredible impact on the commodities world.
It’s a change that creates potentially fatal risks for those reliant on purchasing metals, energy, and foodstuffs… but also massive opportunities for astute investors who get positioned ahead of this building wave.
Editor, Casey’s Big Speculation
P.S. The time to get involved in commodities isn’t when they’re front-page news… It’s now.
This is the market we’ve all been waiting for… and Doug Casey and I are convinced we’re going to see incredible moves in commodities in the next few years.
To learn how you can position yourself for this rare market phenomenon, check out our brand-new video presentation.