Commodities and Gold Miners Have Never Been Cheaper—Does Anyone Care?

The Flying Frisby - money, markets and more

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There are just a handful of tickets left for my “lecture with funny bits” at the Museum of Comedy on October 10th - October 9th got cancelled - events beyond our control, sorry. This is a super interesting show, even though I say so myself. If you are free, I really recommend it.

Some charts have been doing the rounds this week, and I wanted to take a look at them today, as a couple of you have been asking about them.

The first is this one, which shows that, relative to stocks, commodities are as cheap as they have ever been.

I have little doubt that there will be another bull market in commodities, that it will come when people are least expecting it, and that, when it does come, it will blow everyone’s minds, just as previous commodity supercycles have done.

But here’s the thing: we have got better at producing commodities. Modern farming methods mean we can produce more grains and softs at cheaper prices than ever before. Yes, sometimes there are events beyond human control that get in the way—bad weather being the most obvious example—but the broader trend will always be towards lower prices (especially if you use ratios and thereby strip out the fiat factor).

But these are the commodities that we grow. What about fossil fuels and metals, which are finite resources? We’ve long since taken the easy stuff.

Well, yes. But the same logic still applies. Modern mining means we can now explore far-flung corners of the earth and economically produce from much lower-grade rock. The same applies to fossil fuels. Fracking is an example. This new technology meant that previously uneconomic deposits became economic. The result was a glut of supply and lower prices.

So, while I do not doubt that commodities will have their day, I also look at the chart above and see no reason why they can’t get cheaper still. The trend of the last two or three years is lower. That ratio could quite easily go back and retest its 2020 lows. It could go even lower.

There is a lot of value to be had from ratio charts, but you also have to factor in basic stuff like improved productivity. However, there are other factors too. Many think we are heading towards some huge international conflict. If so, international trade will suffer, countries will start stockpiling, and commodity prices will quickly revert to 1973-4/1999/2008 levels.

Are you buying gold to protect yourself in these uncertain times? Let me recommend The Pure Gold Company. Premiums are low, quality of service is high and you deal with a human being who knows their stuff.

Here’s another ratio that is doing the rounds: gold miners versus gold

Now this one is pretty compelling. Time to pile in to gold miners? Let’s see. and let’s also check in on the miners we own.