Are You Ready for the Commodities Bull Market?

Something’s not right…

Crude oil didn’t crash into the mid-twenties for no reason.

World leaders and academics are to blame. They think higher taxes, more regulation, printing money and lower interest rates will solve their problems. Yet, this has crashed the world economy before our eyes.

Commodity prices don’t lie — they’re telling the real story.

When politicians hunt down every spare cent, businesses won’t invest and consumers won’t spend. They’ll save for a rainy day. It’s why industrial commodities (i.e. iron ore, nickel, copper, zinc, lead…) are crashing. There’s less demand for goods in an oversaturated market.

Precious metals are doing alright…

But, this won’t last for long. Commodities are in a vicious bear market — one that will get worse before it gets better.

In the coming months, there will be no ‘safe’ sectors. Gold should see US$931 per ounce before the bear market ends. Silver, being an industrial and precious metal, should get hit even harder.

Thankfully, the nightmare for resource punters won’t last forever. Before you know it, commodities will be in a bull market.

While this may seem ludicrous, I’ll explain…

On the path to war

The next resources bull market has little to do with Chinese growth. It’s got everything to do with rising global conflict.

The global economy is at melting pot — people aren’t happy. They’re rightly protesting and blaming world leaders. And politicians can’t handle the pressure. They’re looking for someone else to blame.

So far, the ‘war on ISIS’ has been a good distraction. Russia and China have also been flagged as antagonists by world leaders.

And let’s not forget about government critics. Leaders have frequently disposed people who stand against the government.

Earlier this month, Saudi Arabia executed 47 people — many of whom were al-Qaeda members.

Among those executed was prominent Shiite cleric, Nimr al-Nimr. The BBC reported that ‘Sheikh Nimr was a vocal supporter of the mass anti-government protests that erupted in Eastern Province [Saudi Arabia] in 2011, where a Shia majority have long complained of marginalisation.

Nimr al-Nimr was an influential critic of Saudi Arabia’s (Sunni) royal family. Unsurprisingly, they wanted to silence him.

The Sheikh’s death sparked wide protests. Reuters reported, ‘Scores of Shi’ite Muslims marched through the Qatif district of Saudi Arabia’s Eastern Province in protest at the execution of cleric Nimr al-Nimr.

Protests weren’t limited to Saudi Arabia. Long-time enemy, Iran — the heartland of Shiite Islam — was outraged with the beheading. Furious Iranians torched the Saudi Embassy in Iran’s capital, Tehran. The next day, Saudi Arabia broke diplomatic relations with Iran. Then, Saudi Arabia warned it would build a nuclear weapon to confront Iran this week.

Stating the obvious, this has deteriorated into an exceptionally serious situation. The chances of a direct conflict between both countries have increased. And they’re already on opposite sides of multiple regional proxy wars.

The turmoil couldn’t have come at a worse time for Washington.

Is a Third World War on the horizon?

The White House is arguing whether it should impose new sanctions on Tehran. This has nothing to do with the recent nuclear deal. If you weren’t aware, Iran test-fired a new generation long-range missile back in October. The National reported,

A US military official said that an Iranian vessel had test-fired several rockets near three western warships, including the USS Harry S Truman aircraft carrier.

Iran accused Washington of lying about the incident. According to The National, Iranian General Ramezan Sharif said,

Publishing such lies in the current situation is more a psychological operation.

The security and peace of the Gulf is of serious strategic importance to Iran. The Guard conduct exercises to increase our required preparedness at due times, based on our own schedule.

The White House should think carefully about implementing new sanctions. Following the recent developments, Iran could easily see this as supporting the Saudi position. This could backfire severely for Washington, and could spark another bloody Middle Eastern civil war, leading to military intervention by Western countries.

It’s unlikely that Russia and China would sit silently. They’re strong opponents of US military aggressiveness and foreign policy. If China and Russia are drawn into the Middle East on a deeper level, the situation could become even more serious.

Commodities rally during times of war

Of course, I don’t want war — nobody should. But if I’m right, you need to know about it now. Especially, if it breaks out in the Middle East…

The January 2001 issue of The Regional Economist noted a strong correlation between the oil price and military conflicts in the Middle East. Leading into all five major Middle East military conflicts between the Second World War and 2002, the crude oil price skyrocketed. You can see this in the red columns in the table below.

And the following chart explains the big moves in the crude oil price since 1970.

You can see that crude oil has always rocketed when war breaks out in the Middle East. And, while I don’t want war any more than you do, it will be no different next time…

Talking about this story, the tensions aren’t currently strong enough to drive a turnaround in commodity prices. Things have to get a lot worse to drive commodity prices higher. For example, a major oil field being bombed in the Middle East or a formal declaration of war.

The geopolitical events are escalating. But, at the moment, this is still a chess match. It will take time before we see a full on confrontation. As such, commodities are due to crash in the months ahead. Commodities, and stocks, will cling to the deteriorating Chinese story in the short term.

When we see a full on confrontation, commodities will boom. That time hasn’t come yet. But if you want to know the best time to buy commodities, and the best miners digging them up, check out Resource Speculator.

You can find out more here.


Jason Stevenson

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Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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