The Economist discusses the extraordinary surge of
commodity prices: “At first glance, it has the hallmarks of a classic inflation
scare. In the past week commodity prices—from oil to orange juice, silver to
sugar—have reached eye-popping levels. In nominal terms, the prices of Brent
crude, copper and zinc have hit record highs. Gold has topped $600 an ounce for
the first time since 1980 and silver is at its dearest in a generation.
Meanwhile, long-term nominal bond yields in America and elsewhere have risen to
levels not seen in more than a year. On April 7th the yield on America’s 30-year
long bond climbed the 5% barrier, sending a flutter of fear through global
markets. The ten-year yield may soon follow.”
Henry has cautiously said “be careful” on a number
of occasions this year. The gloomy guru, Dr Mark Faber, is more direct: “Most
asset markets including stocks and commodities are extremely overbought, and
there is far too much speculation in all investment markets. Therefore, severe
downside volatility, also in precious metals, should not be surprising in the
period directly ahead.”
The trouble for investors is that global demand is
showing possibly unprecedented strength and that the boom in asset prices might
go on for a while yet – Treasurer Peter Costello says maybe for two more years.
The right response is probably to systematically and in a disciplined manner
reduce one’s exposure to growth assets, on the grounds you don’t go broke taking
Read more at Henry Thornton.