Commodities Near a High?

Q: Did Cramer signal the end of the Gold run by shrieking its praises in his show last night? He gushed about the coming $1600 Gold price (along with $16 wheat, and $16 Nat gas, which may suggest the gold target was more about numerical alliteration than calculation).


A: Well, the commodity boom can't continue if the recession talk gets worse. Commodity demand has to decline with a globally weaker economy. All the price increase can't be explained by dollar weakness. So, I am expecting a big selloff in the commodity stocks as they have been driven up by speculation and a thin market (not so much equity chased by a lot of dollars). Gold and oil will be part of that selloff, along with the ag commodities. For this reason, I am light on all the commodities, which are the current bubble. (The fact that Cramer is pounding the table for commodities seals that prognosis for me).

But after a big blowoff, they will be strong again and continue to rise as economies recover around the world, probably late next year. The dollar should strengthen later this year when other govmts cut their own interest rates to reflect the global recession that has begun. A strengthening dollar will also help lower commodity prices in dollar terms for the next 12-18 months. By the end of 2009, there should be another gold and oil buying opportunity with gold at $700 and oil at $70. That is my take, anyway.

In the meantime, the Canroys should be fine on a cash flow basis, as they are only factoring $60 oil into their cash flow and dividend forecasts. They will probably sell down on price, though, if this all comes to pass.