Investors have strategies for making decisions. A common strategy for good investors — or at least those who love to tout their goodness — is to buy what’s hated.
Sir John Templeton, a guy Money magazine named as the greatest stock-picker of the 20th century, characterized the opportunity to buy what’s hated as the “point of maximum pessimism.”
Jim Rogers recently used this concept to explain why he’s not ready to buy more gold yet:
“When people say, ‘I never want to invest in gold again,’ that is when I want to invest in it…When everybody is throwing it out the window, that is usually a good time to buy anything, including gold. So far, there are too many people that love gold.”
This is a strategy of, counterintuitively, identifying value. You know it as “buy low, sell high.”
I think Rogers is on to something with gold. But I’m not sure it will drop all the way to $1,000.
Nevertheless, it’s not just gold I want to bring under this microscope …
Commodities are hated.
Maybe not all commodities in all time frames. But relatively speaking, they are hated.
Crude oil is recovering, while gasoline and heating oil are following in kind.
Gold is still figuring out its way. Base metals have had a few moments in the spotlight when the market gets high on infrastructure-spending potential or China’s economy. Lumber, too.
But agriculture keeps getting the chaff beat out of it. Pretty soon they’ll be giving away corn and wheat futures for free. Coffee futures suggest Starbucks should be giving away a free cup of Joe to every customer who shows up on any given Tuesday. Ditto on the hot cocoa, Mr. Schultz.
Natural gas might as well be the new oxygen. That’s because demand is not expected to overcome supply anytime … ever.
Platinum? Ha, forget about it. Let’s just say the highest-grossing record albums should start going “Palladium” instead of gold or platinum. That’s because palladium is the lone commodity price that’s made a new all-time high anytime in the last 52 weeks. (And, in most cases, a lot longer than that!)
The price of orange juice has flirted with record highs in recent years, but 2017 has been a bit of a rollercoaster.
I say all this to say commodities are not popular with investors.
And if you compare their performance with the stock market, uhhhhh — they are a hated class.
Is this the point of maximum pessimism?
Predicting the Futures
Fortunately, we need not be parked in commodity funds that have been underperforming by large margins.
Here in Natural Resource Investor, we’ve been able to pick and choose from commodity investments that let us realize competitive returns. Even while futures prices collectively move every which way but up.
As long as I’m doing this, my proven strategies for investing in commodities and natural resources will not change. But the overall performance of the commodity market might change for the better.
That’s because an inflationary growth sentiment could materialize next year.
I don’t think it will happen right away. But I do think the real economy — thanks to a feedback loop of firming confidence — will attract more capital. Global demand will remain steady and even strengthen in some cases.
I believe the stock market is due for a significant correction — in both magnitude and duration — very soon. But after that, I suspect the subsequent bull market will make the current stretch look tame.
And I don’t think equities will leave commodities in the dust this next go-’round. That’s because economic growth — rather than quantitative easing and monetary accommodation — will be the basis for investor optimism.
As you prepare for the immediate future, consider some of my major commodity price forecasts:
GOLD — 2018 Target: +19%
Gold looks set to put in an intermediate-term bottom this month. I think $1,500 per ounce is a reasonable target for gold in the first half of 2018.
SILVER — 2018 Target: +20%
The gold-silver ratio reveals that silver is have a tougher time than gold right now. It may stay that way, relatively speaking, until an inflationary growth mentality materializes next year and adds some luster to silver’s industrial demand component. I’ll be looking for a move to $19 per ounce. That would be a pretty sizeable move, but I wouldn’t write off a much-larger advance if bullish fundamental conditions line up just right.
OIL — 2018 Target: +12%
Crude oil should slow down as extreme bullishness gets rebalanced. After that, I think crude oil will be poised to hit $65 per barrel next year. Inflationary growth expectations, if they do surface, could send a barrel of oil as high as $73 per barrel next year!
COPPER — 2018 Target: +27%
Copper turned a corner near the end of 2016, and its price performed well this year. Some concerns about the impact of debt on China’s economy met with technical resistance to pressure the price of copper lately. I expect, perhaps after some additional near-term weakness, copper will eclipse its 2017 high next year — a target of $3.80 per pound is possible — as global growth sentiment improves.
Those predictions are measured from current levels to what I believe are reasonable price targets sometime in the coming calendar year. They are not meant to be construed as the overall performance for the whole of 2018.
When it comes to commodities that are more hated, potential gains next year are even greater. For example, some unexpected weather could combine with a renewed appetite for commodities … and it and send prices of natural gas, corn, wheat or sugar screaming higher.
Whatever happens, I’m going to keep doing what I’m doing to navigate the ups and downs in real-time — to earn competitive returns — as the market provides.
Speaking of banking some returns, it’s almost time to grab the better-than-20% open gains on our bearish bet with the Direxion Daily Gold Miners Bearish 3X ETF (DUST)! When we do, I suspect it will be time to change direction on gold and gold miners.
Stay tuned.
Do right,
JR