Posts filed under “Commodities”
One of the more interesting things you will read this weekend is the Sunday NYT Magazine’s spread on legendary investor Jeremy Grantham. GMO’s chief strategist discusses quite a few topics ranging from investing to global warming to commodity plays to doom & gloom. (Yeah, I have a few words in it).
There are a number of parts of this article I find intriguing, but I found the issue of framing particularly fascinating. In the US, the issue of Global Warming generates a paltry response — but reframe the question as one of finite resources, and everyone pays attention. Its as if we Americans have become the Ferengi of the planet, obsessed with profit and trade and swindling people into bad deals.
Regardless, the article is rather compelling. I’ll skip my excerpt and point you to the framing discussion:
“Having missed a once-in-a-generation legislative opportunity to address climate change, American environmentalists are looking for new strategies. Grantham believes that the best approach may be to recast global warming, which depresses crop yields and worsens soil erosion, as a factor contributing to resource depletion. “People are naturally much more responsive to finite resources than they are to climate change,” he said. “Global warming is bad news. Finite resources is investment advice.” He believes this shift in emphasis plays to Americans’ strength. “Americans are just about the worst at dealing with long-term problems, down there with Uzbekistan,” he said, “but they respond to a market signal better than almost anyone. They roll the dice bigger and quicker than most.”
Not that it’s always easy to derive usable market signals from Grantham’s letters. Ben Inker, GMO’s head of asset allocation, told me: “Just because he’s right and we know something’s going to happen doesn’t mean that we have a brilliant way to make money on it right now. In this industry people want to be right this quarter. Often, they read the letter, and they’re wondering, What would we do about that?”
But among the ways investors might respond to limited resources, beyond simply trying to grab up a lot of what Grantham calls “stuff in the ground,” are many that also address climate change: for instance, investing in farms and forests managed for the long haul, or in companies that retrofit buildings for energy efficiency, build ultralight vehicles or develop non-hydrocarbon-based power.
“There’s an 80-20 overlap between sensible behavior on resource limitation and sensible behavior on climate change,” Ramsay Ravenel, the executive director of the Grantham Foundation, says. “A lot of his audience isn’t that receptive to messaging on the world’s environment going to hell, but they are receptive to resource limitation.”
The entire article is well worth a read . . .
Can Jeremy Grantham Profit From Ecological Mayhem?
NYT, August 11, 2011
A study from accounting firm KPMG urges a close look at fossil fuel risks. Jeremy Hobson: Well one place investors have turned to for safety is fossil fuels. They’ve been pumping their money into things like oil, natural gas, and coal. But a study out today says there may be a fossil fuel bubble. Eve…Read More
Economic & Copper Advisory Services: Economic Report – June 2011 By John Mauldin June 19, 2011 ~~~ This week’s Outside the Box is from one of the more interesting thinkers and observers of the markets I know, Simon Hunt. When we get together in London, conversations are lively, as we don’t always see eye to…Read More
As legendary investor Jeremy Grantham notes, copper production is falling:
As I’ve previously noted, gold production has also been falling:
Reuters India noted on March 29th:
China’s gold demand is expected to double over the next decade due to jewellery consumption and investment needs, the World Gold Council (WGC) said in its first report on the world’s fastest growing consumer of the metal.
If the central bank boosts gold holdings to 2.2 percent of forex reserves, a peak level seen in 2002, from the current 1.6 percent, China’s total incremental demand would rise by 400 tonnes at the current gold price, the WGC report said.
China’s share of global gold demand doubled from 5 percent in 2002 to 11 percent in 2009, and the council predicted that China’s domestic gold mines could be exhausted within six years.
“The Chinese gold industry is simply not responding fast enough to bring in new supply,” it said.
China is not the only country facing declining gold production.
The world’s biggest gold producer – Barrick – says that the relatively easy-to-reach gold supplies are gone, and so supplies are getting more and more expensive to locate and extract:
Aaron Regent, president of the Canadian gold giant [Barrick], said that global output has been falling by roughly 1m ounces a year since the start of the decade. Total mine supply has dropped by 10pc as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run.
“There is a strong case to be made that we are already at ‘peak gold’,” he told The Daily Telegraph at the RBC’s annual gold conference in London.
“Production peaked around 2000 and it has been in decline ever since, and we forecast that decline to continue. It is increasingly difficult to find ore,” he said.
Mining-Technology.com stated in March 2008:
Global gold production has been in steady decline since 2002. Production in 2007 was around 2,444t, down 1% on the previous year.
Analysts note that virtually all of the low-lying fruit has now been picked with respect to gold, meaning that companies will have to take on more challenging and more expensive projects to meet supply. The extent to which the current high price of gold can translate into profits remains to be seen…
According to Bhavesh Morar, national leader of the mining, energy and infrastructure group with Deloitte Australia, frenzied exploration activity over the last few years has seen virtually all of the easy harvest been picked with respect to gold…
The high price of gold is however encouraging more adventurous projects, be they more challenging financially, geologically, geopolitically or all three. New projects for gold and other resources are mushrooming throughout Africa, China, the Middle East and the former Soviet Union; all areas where sovereign risk is potentially very high.
Zeal Speculation and Investment wrote last July:
Miners have the same geological landscape to work with today as those miners thousands of years ago. The only difference is the low-hanging fruit has already been picked. Gold producers must now search for and mine their gold in locations that may not be very amenable to mining. Many of today’s gold mines are located in parts of the world that would not have even been considered in the past based on geography, geology, and/or geopolitics.
And these factors among many are attributable to an alarming trend we are seeing in global mined production volume. According to data provided by the US Geological Survey, global gold production is at a 12-year low. And provocatively this downward trend has accelerated during a period where the price of gold is skyrocketing.
You would think that with the price of gold rising at such a torrid pace gold miners would ramp up production in order to profit from this trend. But as you can see in this chart this has not been the case, at all. Not only has gold production not responded, but it has dropped at an unsightly pace that has sent shockwaves throughout the gold trade.
This morning, I will be giving a Macro overview to a group of metals and commodities investors at 10:00am at the annual Ryan’s Notes Conference at the NYAC in New York. If you are attending, please swing by to sat hello . . .
These three charts are pretty cool (courtesy of The Chart Store) — they show many hours you need to work in order to buy one unit of each of these — Oil, Gold and the4 CRB Commodities Index. This introduces another element to commodity pricing — relative wage gains. > click for larger charts
In the chart below we take a look at the relationship between lumber prices and private nonfarm payrolls. Clearly they tend to move together on a monthly basis. One of the transmission mechanisms of monetary policy is the impact of interest rate changes on the construction sector, which has historically been a leader of…Read More