Many have cited a weak USD as the primary cause of strong commodity prices as of late, however, on closer inspection it appears that commodity prices are rising even in non USD terms. This suggests either rising global inflation, global industrial production, or some combination of the two. Frankly we are not so concerned with the reasons why commodities are rising because it is likely that the reasons are merely justifications for the rise in commodity prices. All we are interested in is the fact that the CRB Index (as a proxy for commodity prices) is rising against all the developed currencies, except for the Kiwi and Aussie. Given the degree to which commodity prices have fallen, the unprecedented efforts of central banks to increase the money supply over the last 12-18 months, and the recent reluctance to reign in liquidity, we believe that the trend of outperformance of commodity prices in USD and non USD terms is far from over. The final nail in the coffin for “fait” currencies will be the performance of commodities relative to the Aussie. If the CRB begins to outperform the Aussie, and we think it is only a matter of weeks before it does, then we are likely to see unprecedented rises in commodity prices, at least since the 1970s.
In all the charts above note the behaviour of the long term rate of change, in all three cases it suggests that commodities are fast becoming the long term store of wealth.
