Famed investor and best-selling author Jim Rogers was interviewed by Yahoo!’s Tech Ticker back in October 2009, and he’s still bullish on commodities, but not so much on gold.
Here’s the 30-second takeaway from the video:
Individual investors should focus on commodity ETFs, unless they have a deep understanding and interest in commodities futures trading.
Forget gold, and invest in other material instead like lead, zinc, copper and silver.
Agriculture is the next big crisis, with the Food and Agriculture Organization warning countries that the world is one disaster away from a major food shortage in much of the world.
“I think I’ll make money in other commodities that are more useful.”
Rogers owns gold, but he not very bullish on it. I think his argument against gold is a good one. He basically thinks that it has some intrinsic value, but only from a subjective point of view. It simply isn’t as practical a metal as lead, zinc or silver. And because gold “is mystical to many people”, it’s garnered the lions share of attention, but that also means there’s less upside potential than there is in more over looked, less attractive metals.
“most agricultural products are still depressed on a historic basis.”
Speaking of useful commodities, Rogers is quite bullish on agricultural commodities. Rogers sees a vast lack of supply, and calls it a looming catastrophe. He thinks that the world is in for a period ahead when some parts of the globe won’t be able to get food at any price.
“The story is not over, not for a while. I don’t see any reason it’s going to be over for a few years because no one is bringing new supply on stream.”
Is Jim Rogers right?
Who knows? But he was right when he called a global commodities rally in 1999. And he presents sensible arguments to support his views on various commodities, which is more than I can say for many of the gold pushers that have been crawling out of the woodwork in the past 3-5 years.
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The Gold Fix is the act whereby the price of gold is set, twice daily, by the 5 members of the London gold pool. This price is used as a benchmark for most of the global gold products and derivatives pricing.
This “fixing” of the gold price by the London gold pool is based on the ubiquitous economic principle of supply and demand. The gold fix is performed in the U.S. dollar, British Pound sterling and the Euro. It is done at 10.30am and 3pm, London time.
The first meeting of the London gold pool was on September 12th, 1919 at 11:00am. And the meetings have occurred ever since with the exception of the period between 1939 and 1954, when world war II led governments to control the price and the gold market was closed.
The historic high price of gold was reached on January 21st, 1980 when gold hit $850 per ounce. That number was not reached again until January 3rd, 2008 however, when index for inflation the 1980 is $2398.21 in 2007 dollars, so the 1980 record still stands as the historic high price of gold in real terms.
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Inflation is in the news again, thanks to worries over the historic deficit spending in Washington today. If the Fed gets the timing wrong on the next round of interest rate hikes, then inflation could be a real problem.
According to a recent working paper by the International Monetary Fund:
“Given the policy tools employed through the crisis so far, particularly massive injections of liquidity and quantitative easing, the risks of this outcome remain significant. This implies that inflation hedging should remain an important component of long-run investment policy.”
To that end, here are 13 ETFs …
TIPS (Treasury Inflation Protected Securities)
For domestic TIPS, check out the iShares Barclays TIPS Bond Fund (TIP) and SPDR Barclays Capital TIPS (IPE). TIP is has over $14 billion in assets and sports a 0.2% expense ratio and 4.68% yield. By contrast, IPE has $288 million in assets, a 0.19% expense ratio.
Like everything else in the investing world these days, there’s an international option: the SPDR DB International Government Inflation-Protected Bond ETF (WIP), which follows inflation-indexed bonds in foreign markets. WIP has $394 million in assets, a 3.70% yield and a 0.5% expense ratio.
TIPS have lost value recently because the major fear is still deflation, but by the time everyone is talking about inflation as a serious threat, their price will have shot up.
Gold and Precious Medals.
Commodities are a classic inflation hedge, and now you can use ETFs to simplify your diversification.
Here are some of the more popular ETFs in this category:
SPDR Gold Trust (GLD) (stores underlying gold in a vault)
Another potential hedge might be foreign currencies, since the dollar would likely lose value against foreign currencies if inflation rages. Here are 2 choice ETFs for that hedge:
No one can say for sure whether we’re in for times of high inflation, deflation or a return to normalcy (whatever that is), but it’s important to have a least some of your portfolio in various vehicles for insurance against such wealth destroying environments.
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Any information I share on After Hours Investing does not constitute financial advice. I am not a registered investment advisor or broker-dealer nor do I purport to tell or suggest which securities readers or customers should buy or sell for themselves. I am an amateur investor who is sharing what I learn as I learn it.
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