The bears are all out in full force: they’re proclaiming how “commodities are dead” or “this is the end of the great commodity bull market” or “commodities have seen their best days already”. But what these bears fail to realize is one thing: every bull market MUST exceed it’s previous high (not inflation adjusted). By just taking a look at history, we can see that clearly, most commodities haven’t exceeded their previous highs. So this raises 2 points.

Someone’s buying as much as he can.

Just take a look at commodity prices over the past few weeks/months. They’re trading within a very small range. Every time the price falls to the bottom of that range, someone snaps up as much as he can. But every time prices rise to the top of that range, they quickly fall back down. So it seems like someone’s sucking the liquidity out of the market.

Next, take a look at the Chinese stock market, and you’ll notice something weird. Commodities and Chinese stocks are moving in the exact same pattern! This could probably mean that the Chinese government is sucking out all those commodities contracts and futures. Which entails 2 things.

In 1980, silver spiked from $7 an ounce to $50 in mere months. However, silver panned a 10 year bottom, during which the Hunt brothers bought as much silver as they could. S

Which means that the next continuation of the commodities bull market will be huge: there’s not a lot of contracts/futures floating around, so all it takes is one small speculative hand to jack up the price.

Not one peak, but multiple peaks?

Jeremy Grantham is the famed hedge fund manager behind GMO. Bubbles usually end with 1 or two peaks. However, Jeremy said that this time, the bubble might end with multiple peaks. Grantham says that the China factor has completely changed the equation, and due to demand from China, commodities may realize multiple peaks.

His guesstimate is plausible: we know that history repeats itself, however, there hasn’t been enough “commodities-history” to infer the future based off of. Commodities were only allowed to float freely during the 1970s, which means that since that time, we’ve only experienced 1 1/2 bull markets and 1 bear market for commodities. Definitely not enough history to base future projections off of.

And another thing. Jeremy Grantham’s rarely been wrong before, which I guess is why if he is wrong, he’ll be wrong in a really big way.

Mullins | mullins@siaaopportunity.com

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