On Buying The Commodity Dip

Tyler Durden's picture

With Gold, Silver, and Oil down quite considerably since the second LTRO from the ECB ended the immediate elevations in global central bank stocks and flows and now all marginally positive/negative year-todate, the question of the day is whether this is a dip to be bought or a liquidation to be sold into. Sean Corrigan, of Diapason Commodities, provides some guidance:

At this uncertain juncture, to use commodities primarily as a means of obtaining an element of inflation protection, of owning a call option on monetary and fiscal stupidity, seems to be the more pressing imperative, especially since it is one which also offers a growth kicker in a manner which more traditional instruments - such as index-linked bonds - certainly cannot hope to approximate given the ruinously negative real yields which attach to them in this Looking Glass world of deliberately falsified interest rates.

 

Each successive resort to the printing press may well bring less and less material relief to a world still trying to maintain the pretence that the pre-Crash reckoning of prosperity was a sound one and still striving therefore to return valuations to those that prevailed in that particular vision of El Dorado, but the repeated recourse to inflationism will teach people that they should seek out ways of protecting themselves from its malign effects.

 

As they do so, they will eventually act upon their newfound understanding and then, instead of assuaging the fever as they are today by holding money, they will begin to aggravate it by accelerating their purchases and building up their precautionary stocks of goods. It is against the dawn of that evil day, as much as for any other reason, that holders of predominantly financial assets should contemplate the need to buttress their existing investment framework with a few solid girders of good, hard commodities.

 

In other words: Nothing Has Changed; Central Banks have only one trick which they will use when necessary; normal assets will waver in risk-on/risk-off mode because of that; commodities offer protection from the profligacy with an upside growth cover.

Gold, Silver, and Oil post March 2009 lows...

 

and as far as those global REAL interest rates (courtesy of Gresham's Law):