I have to agree with this. The move in silver from $4/ounce to $13/ounce was the easy money. From here on out, it's going to be real work to get those type of returns in commodities. One thing I do watch is the growing water availability problem. Good money to be made when the crops fail from drought.
A Bad Omen Foretells the End of the Easy Money in Commodities
Every bull market spawns the creation and introduction of new investment products, and the ongoing boom in raw materials is no exception.
Wall Street and other financial product innovators always launch new instruments after a bull market takes off for that respective asset class or sector. As prices rally, investor demand rises. And sometimes, investors become almost hysterical, throwing money into a particular asset class. Case in point: the late 1990s bull market in technology stocks, which resulted in the worst crash for tech stocks in history. Seven years after the NASDAQ imploded, the index remains almost 50% below its all-time high.
Commodities, which bottomed in late 2001, have enjoyed big gains over the last six years. There's only been one losing calendar year for performance logged in 2006, and that was mainly due to declining energy prices.
This year, commodities are soaring. Prices for many industrial commodities have hit all-time highs over the last 12 months. Precious metals hover near multi-decade highs and the grains at their highest level in years. Energy prices now trade at their highest levels, in nominal terms, in history, excluding natural gas.
But the danger signs are starting to emerge for commodities. Investments in exchange-traded funds (ETFs) tied to commodities might double to over US$40 billion dollars in two years, according to London-based ETF Securities, a leading commodity ETF sponsor. And in the United States, a blizzard of new commodity ETFs have hit the market over the past 12 months, including ETFs tracking oil, natural gas, water stocks, base metals and even an ETF betting on declining oil prices. Three years ago, only three ETFs traded in commodities, mainly in gold.
The bull market in raw materials is not over. But to be sure, the easy money for most investors is now behind us, unless you know where to trade.