Well, the very week that brought us the Goldman Sachs warning that the risk of investing in commodities now outweighs the possible rewards also brought new records in the price of gold (the overnight high came in at $1,479.90) and had silver scaling new peaks near $43 an ounce. It has also been a week of relative turmoil in the commodity markets as the complex slumped by the largest amount in one month following the Goldman clarion call after having shown as much as a 16 percent rise in the S&P GSCI index of 24 raw materials in the year-to-date.
Topping it all off for the week (and, in the minds of some, actually indicating some kind of a sign of a top), is the year’s largest IPO; that of commodity trader Glencore (formerly Marc Rich & Co., but that would not sound as…imposing). The firm could be valued at as much as $60 billion while its partners have stated that they do not aim to do the IPO “right at the top of the cycle.” Only time will tell. Business Week offers the disturbing thought that “It's as if 2008 never happened. Once again the world's investors are pumping up bubbles that will probably explode in their faces. After the popping of a real estate bubble led to the first global recession since the 1930s, world markets are frothing like shaken Champagne.”
Yale University’s Professor Robert Shiller has computed that, for example, the S&P 500 index is currently trading at 23 x earnings normalized over the past 10 years – when its historical average is generally near 16x earnings. Such findings have prompted Doug Noland, of the Federated Prudent Bear Fund to warn that "I fear this is the granddaddy of them all, an almost-encompassing bubble right at the heart of monetary systems."
For the sake of perspective, one might also note that the annual average gold price for the period extending from 1974 to 2009 is $387, while the same average is only $541 for the period from 2001 to 2009. Finally, the average price for the crisis period that engendered most of what we are reporting here today was $759 per ounce. As we go to print, the spot price is trading at 3.8x the 35-year average. Bloomberg Surveillance host Tom Keene noted this morning that it only took seven trading sessions in 1980 to undo the spectacular spike that took the yellow metal to its record of $845 back in mid-January of that epic year.
Back to G-20 blogging. Have a pleasant weekend.
Jon Nadler is a Senior Metals Analyst at Kitco Metals Inc. North America