Gold prices hit an all-time high on Tuesday, climbing above $1,900
an ounce in mid-day trading. Prices have since dipped to around
$1,815, leaving many investors wondering what's in store forthe
precious metals market.
I have to admit: I'm something of a Jim Rogers fan. I've read all
of his books. I watch every one of his appearances on TV, and I
study his career and investments extremely closely.
In a world where talking heads and b-school economists blather on
in flowery finance-speak that doesn't make a lick of sense, Jim
Rogers seems to always speak in a clear, simple and easy to
He speaks the language of commodities.
And while I always do my own due-diligence, I put a lot of stock in
what he says - sometimes literally.
Even though I know the commodity train is still running, sometimes
it's nice to put my ear to the tracks and hear Jim Rogers saying
the bull-market is going to roll on - the same things I've
independently verified for myself.
For instance, I hear lots of people saying that while commodities
have had a nice run, the bull market in "stuff" is nearing its end.
That begs the question: how long can a commodity bull market last?
It's a valid and important question.
I'm a commodity investor, but not for sentimental reasons. As much
as I value gold as a hedge against inflation, or oil's ability to
make my car go vroom - I invest in commodities for fundamental
reasons - largely because I believe they are still cheap and
undervalued from a historical perspective.
So, back to the question at hand. How long can a commodity run
Jim Rogers answers that very question in his 2004 book "Hot
Commodities." Specifically, he references a study by Legg Mason -
which found that the average commodity bull-run lasts between 17
and 18 years. The study also revealed that every commodity bull
market in the last 130 years has coincided with a bear market in
In the chart below, you can see this trend at work.
The chart also shows that we've only been in a commodity bull
market for 11 years at most. The shortest bull market in
commodities was between 1969 and 1981, a 12 year period. The
longest was between 1930 and 1950, or 20 years. By historical
standards we should have at least another year to go before the
gravy train slows.
Will this commodity bull-run be the shortest in history? I doubt
it. Most commodities I follow are still cheap. Some nominally so,
but most are historically below their inflation-adjusted highs. At
the end of every other commodity bull run, prices for most
commodities were above their inflation adjusted highs.
For instance gold's inflation adjusted high is over $2,200 an
ounce. Compare that to today's prices of just over $1,800 an ounce.
Natural gas (as I've stated in the past) isn't just cheap - it's
almost impossibly cheap. I don't know how natural gas companies can
stay in business with prices this low. Natural gas currently sells
for just over $4 per thousand cubic feet. That's the equivalent of
gasoline at 50 cents a gallon. The strongest of these companies are
still a screaming deal right now.
The list goes on. Silver is even cheaper than gold right now.
Copper has nearly doubled over the past couple of years, but it's
75% cheaper than inflation adjusted highs of over $14 a pound in
the mid 1970s.
Okay - you get the idea. My point is: commodities are still
undervalued. It's a long-term trend that's still unwinding. The
numbers don't lie. And neither does Jim Rogers.