THH – The Era of Commodities

I started this piece a few weeks ago but never finished it. In light of the recent headlinesbelow I think it’s playing out faster than I was even prepared for:

• SAUDI ARABIA CONSIDERS ACCEPTING YUAN INSTEAD OF DOLLARS FOR CHINESE OIL SALES

• Putin wants ‘unfriendly’ countries to pay for Russian gas in roubles

And then:

BREAKING NEWS:

THE RUSSIAN CENTRAL BANK WILL RESTART BUYING GOLD FROM BANKS AND WILL PAY A FIXED PRICE OF 5,000 ROUBLES PER GRAM BETWEEN MARCH 28 AND JUNE 30 pic.twitter.com/Q1kTSfzAIm

— Gold Telegraph ⚡ (@GoldTelegraph_) March 25, 2022

So commodities are making a come back as the basis for value…

A monumental shift is happening and for several decades commodities have simply been “commodities” but not any more…

So what is one to do in this new era?

Well first of all I think physical gold and silver are probably the most obvious buys they have perhaps ever been in modern history.

Second of all I like a lot of commodities since there are obvious supply shortages. Case in point Nickel going up hundreds of percent on a short squeeze as supply was getting critical.

With that said this new era ought to coincide with an unfolding global recession due to inflation, paper money dying (USD primarily, and ongoing shortages in food and energy that can probably get a lot worse since there are new headlines all the time about countries restricting exports. When the chips are down countries will of course prioritize their own citizens above the “greater good” from a global point of view. One could thus assume that typical demand for industrial commodities could take a hit just like in 2008 when copper, oil and other basic commodities went down 70% or more from pre-recession peak to through…

Working against that would be the demand for real assets in a world where countries actually have to trade something real to get something real…

But at the end of the day, even though all commodities could do very well for different reasons, I just have to believe that gold and silver will actually outperform them. Why? Because gold and silver are… Real money. And if there is a scramble for real value there is nothing realer. And whereas base metals are a) Not concentrated enough in terms of value, and b) Will see less industrial demand in a recession, gold and silver ought to have peak utility in this environment. Like in a typical barter system there might be a country that has a lot of tin (and therefor does not need more tin). Another country might have a lot of copper (and therefor does not need more copper) etc etc. Gold and silver, as money, would of course be the natural thing to use in terms of settling countries imbalances, and therefore be in demand by everyone… Just like FIAT money has worked up until now. If I have gold I can trade it for copper, tin, energy or food etc. If I have copper I can’t trade it for tin unless the country that has the tin wants the copper… Gold would be the anchor of value and have the premier, universal utility like it used to have.

This is a clip of Putin from today that basically spells it out:

Putin predicting dollar and euros demise and everyone moving to "real reserves of raw materials" like "land, food, and gold"

pic.twitter.com/m3mq9ez6hf

— Wall Street Silver (@WallStreetSilv) March 27, 2022

I wonder what jurisdictions would be best from a miners point of view? Canada and Australia ought to rise in relative strength due to being commodity heavy economies(?) And they can’t really nationalize it all I guess since the sectors are perhaps too big and they don’t even need all the supply domestically anyway(?). I imagine the US to get a much weaker currency as the USD’s reserve currency status weakens in favor of hard assets as well so that might be a boon for US producers. With that said I guess the US could see a more severe shock to it’s entire economy/society when the country can’t print IOUs to keep its standard of living anymore.

If I had to rank the current Risk/Reward across some assets:

1. Physical Gold / Physical Silver
2. Gold Miners
3. Silver Miners
4. Oil, gas, and base metal miners

Anyway, some very relevant food for thought.

Note: This is not investing advice.